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June 3, 2022  |  3 Minute Read

Candice Tse

Global Head of Strategic Advisory Solutions

Candice Tse


US national debt held by the public, now at over $23 trillion, nearly totals annual GDP for the first time since World War II and is projected to go even higher1. With interest rates rising, the sustainability of US debt is top of mind again, especially after recent pandemic-era spending contributed nearly 30% to the overall balance2. In our view, US debt will likely remain sustainable even against a slowing but still resilient US economy and tighter financial conditions. Still, the pace of debt accumulation remains a critical indicator to watch.


Investors often evaluate the sustainability of debt by relying on metrics such as US debt to GDP. While helpful, this stock measure captures total obligations at a point in time, much like a photograph. On the other hand, interest expense to GDP is a flow measure captured over a specific period of time, resembling a video. We believe the latter is a better measure of debt affordability, as it considers how payments come due over time against current and future GDP. When evaluated through these lens, real interest expense—at 0.7% of GDP—is in line with its historical average and below the high ratios set in past decades, as shown in Exhibit 13. Even amid rising rates, we believe the cost of borrowing remains serviceable, especially with continued economic expansion, attractive yields supporting foreign demand, and the US dollar’s role as a reserve currency.



Exhibit 1: Reading Debt Right


Source: Office of Management and Budget, Goldman Sachs Global Investment Research, and Goldman Sachs Asset Management. As of March 23, 2022. Figures for the years 2021-2040 are forecasted by Goldman Sachs Global Investment Research. The economic and market forecasts presented herein are for informational purposes as of the date of this document. There can be no assurance that the forecasts will be achieved.



We also think the composition of existing debt should keep interest payments affordable. As shown in Exhibit 2, only 3% of federal debt has a variable-rate structure and 16% is in short-term financing via Treasury bills, each of which are more sensitive to the interest rate environment4. While these segments may see interest payments re-calibrate higher, the majority of debt is based on fixed-rate debt set at longer maturities, and will likely see real values diminish. Our expectation for sustained inflation above 2% in this economic cycle may mean real interest expense on US debt should continue to hold near 0% and remain a strong tailwind for US debt serviceability.


The long-term structural decline in bond yields is also encouraging for fixed-rate Treasuries of longer maturities. Though rates have moved back to more normal levels, bonds today are still issued at lower yields relative to maturing debt from decades ago. As a result, Treasuries with higher interest rates may continue to be rolled over into lower interest rates, offsetting the total average financing costs of US debt.



Exhibit 2: Federal Debt Composition


Source: US Department of the Treasury and Goldman Sachs Asset Management. As of April 30, 2022.



While current debt levels may become unhealthy should macro conditions deteriorate, affordability is not yet alarming as interest expense remains in line with history and limited near-term exposure to higher rates may keep market values balanced. We also view the record-spending levels of 2020 and 2021 as one-off responses to an exogenous shock. Ultimately, we believe that US debt can stay elevated so long as the prevailing macro conditions do as well.

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Office of Management and Budget, US Treasury, St. Louis Federal Reserve, and Goldman Sachs Asset Management. As of May 16, 2022.

US Treasury and Goldman Sachs Asset Management. As of May 16, 2022.

3 Office of Management and Budget, Goldman Sachs Global Investment Research, and Goldman Sachs Asset Management. As of March 23, 2022.

US Department of the Treasury and Goldman Sachs Asset Management. As of April 30, 2022.



Gross Domestic Product (GDP) is the value of finished goods and services produced within a country's borders over one year.

Real interest expense refers to the federal government’s interest expense that has been adjusted to remove the effects of inflation relative to the level of Gross Domestic Product.

Real values refer to any nominal values adjusted for inflation.

Treasury Inflation-Protected Securities, or TIPS, refer to bonds that provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index.

Risk Considerations

Investments in fixed-income securities are subject to credit and interest rate risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and principal. This risk is higher when investing in high yield bonds, also known as junk bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than their original cost upon redemption or maturity.

Although Treasuries are considered free from credit risk, they are subject to interest rate risk, which may cause the underlying value of the security to fluctuate. Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of May 20, 2022 and may be subject to change, they should not be construed as investment advice.

Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.


This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

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Date of first use: May 23, 2022.  279849-OTU-1613538.

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