U.S. Treasurys, the world's safest asset, are wobbling under a "debt trap." U.S. national debt has topped $40 trillion for the first time, and the 30-year Treasury yield recently broke above 5.3%, its highest level since 2007. The Treasury Department eventually reached for an emergency prescription, sharply expanding its buyback program for long-dated debt.
The scarier part is interest. In 2025, U.S. interest costs on government debt ran well past $1.2 trillion (about 1,700 trillion won), a record high. That exceeds the defense budget. By one measure, net interest costs reached 18.5% of federal revenue, surpassing the previous peak of 18.4% set in 1991.
Debt breeds interest, and interest breeds more debt. As the fiscal deficit widens, more Treasurys are issued, pushing yields higher. Higher yields then swell interest payments and widen the deficit again. That is how the debt trap forms: fiscal deficit, then more debt issuance, then higher rates, then heavier interest costs, then a bigger deficit.
A new variable has been layered on top: the artificial intelligence investment boom. Astronomical sums of private capital are needed for data centers, semiconductors and power grids, so the U.S. government and companies are draining funds at the same time. Massive Treasury issuance and private funding demand are combining to push rates up.
The card the increasingly pressed Treasury played is the buyback. It repurchases illiquid long-dated Treasurys to improve supply, demand and liquidity in the long-end market. Right after the announcement, the 30-year yield eased from the 5.3% range to the 5.2% range. The 10-year yield fell 6 basis points (one basis point equals 0.01 percentage point), temporarily braking a steep climb in rates.
The flames were doused for a moment, but the embers remain. A buyback is a tool for managing liquidity and the maturity structure of the Treasury market, not a structural fix for the fiscal deficit. Long-dated debt is not being retired by cutting government spending. Instead, the Treasury draws on its general account, which holds roughly $1 trillion, or issues more T-bills to take in long-dated paper. Neither changes the total stock of debt.
A rising share of short-term debt brings another risk. The Treasury Borrowing Advisory Committee recommends a ceiling of 20% for bills, but the share has climbed to 22%. Long-term debt has not been forgiven; it has simply been shifted into short-term debt that is vulnerable to rate swings.
This is a rollover pattern, repeatedly refinancing long-dated debt with high-rate short-term paper. It can become a time bomb that invites seizures in short-term funding markets and erodes confidence in the sovereign balance sheet. If deficits and debt keep growing, U.S. Treasury yields will not easily return to the low levels of the past. A "higher for longer" phase is likely to set in.
The problem does not stop at the U.S. border. If long-term U.S. rates stay elevated, upward pressure spreads to Korean government and corporate bond yields. Volatility in the won-dollar exchange rate grows, and concerns about foreign capital outflows rise. The burden is heavier for an economy like Korea's, which has many rate-sensitive segments such as household debt and real estate project financing.
That is why the response from Korea's government and financial authorities must be more precise. U.S. Treasury yields, issuance structures and global capital flows must be monitored at all times. Authorities must manage the foreign currency liquidity of financial institutions and the maturity structure of external debt, and preemptively reduce risks in vulnerable segments such as household debt and real estate project financing, to build a stronger macroprudential backstop.
The $40 trillion in U.S. national debt was not built overnight. It is the result of annual deficits accumulating over decades. Korea does not issue a reserve currency. It must manage fiscal credibility more strictly than the United States does.
Spend boldly where spending is warranted, but cut unnecessary outlays. Expand investment that raises future growth capacity, while guarding against increases in recurring and consumption spending. Build fiscal room during good times to prepare for crises.
Spend well, manage well and keep room in reserve for a crisis. A fiscal policy that carries tomorrow's debt through growth is the principle Korea should take from the warning signals coming out of the U.S. Treasury market.
