PIMCO market strategist and portfolio manager Tony Crescenzi said U.S. net interest costs could reach 4% of gross domestic product by decade’s end as heavy borrowing worldwide gives bond investors greater sway over financing terms.
Crescenzi said net interest costs had reached 3.2% of GDP in an Oct. 18 Bloomberg interview. He linked his outlook to borrowing by governments and companies around the world, arguing that investors can seek more favorable terms when borrowers compete for capital.
Bondholders could benefit from that shift, while borrowers face higher financing costs, in his view. Crescenzi said rising interest expenses could also draw money away from the private sector. For companies seeking credit, he said, lenders are paying closer attention to the cash available to repay debt.
He used CoreWeave as a corporate example. Crescenzi said bond investors were examining whether the company’s cash flow would cover principal and interest payments. He described it as a borrower without the credit standing of the strongest companies, making its repayment prospects particularly important to lenders.
Governments can face similar pressure, he said, citing France’s budget deficit and the turmoil in U.K. government bonds in 2022. After a proposal to widen the U.K. deficit, the yield on its 10-year government bonds rose 150 basis points within weeks, according to Crescenzi.
International Monetary Fund staff has separately urged higher federal revenue and changes to entitlement programs to put the U.S. debt ratio on a declining path. It called for fiscal changes worth about 4% of GDP against its baseline, including protections for lower-income households. That figure measures proposed policy changes, rather than the annual interest costs in Crescenzi’s outlook.
Crescenzi recalled President George H.W. Bush’s 1990 tax increase after his 1988 pledge against higher taxes as an example of a leader changing fiscal course. He said the administration due to take office in 2029 may also have to reconsider tax or spending policy.
