My first job in the investment business was managing fixed income portfolios and trading bonds for a bank trust department in Baltimore. This was way back in the early 1990s, and a lot has changed over the years. For instance, back then, we used to think stuff like the trade and federal budget deficits would cause interest rates to climb.
The thought process was pretty simple. You have to finance deficits. The bigger the deficits, the more you have to borrow. The more you borrow, the more you will likely have to pay lenders. This isn’t rocket science. It is basic common sense.
However, as crazy as it may seem, the more we borrowed, the more people seemed willing to lend. Crazily enough, we ultimately ended up financing our trade deficit with our budget deficit. Or was it the other way around?
In any event, foreigners took the money we gave them for the finished products they sold us, and often plowed it back into U.S. dollar-denominated investments, including U.S. Treasury debt securities.
Consider this. According to my Bloomberg, ‘U.S. Treasury Major Foreign Holders Total’ was $1.015 trillion at the end of 2000. At the end of the second quarter of 2026, the estimated value was $9.352 trillion. That is a difference, or growth, of $8.337 trillion over those 25.5 years. As such, the simple average is around $327 billion per year since the end of 2000.
To put that number into perspective, it is about what the IMF’s estimate is for Finland’s nominal GDP in 2026. (1) Again, this is just ‘major foreign holders.’ It doesn’t include the Federal Reserve’s massive quantitative easing programs, which would include roughly another $6 trillion in government debt purchases. That is another $235 billion, on average, over the last 25 years.
When you add the two together you can safely conclude the following:
Since the start of the century, foreign investors and the U.S. Federal Reserve have helped to finance Washington’s deficit spending. Because they have provided somewhat consistent demand for the last 25 years, especially up through the end of 2021, you could argue they have helped to keep longer-term interest rates lower than where they would be IF the U.S. Treasury were solely reliant on the American private sector to finance the public sector’s profligacy.
Put another, equally confusing, way, foreign investors and the U.S. central bank have pushed the demand curve out to the right, while the U.S. Treasury has done the same thing to supply. This has kept interest rates in a lower range than they arguably should be, at least in one man’s opinion.
This, then, raises the question: What would happen to the U.S. Treasury market IF the Federal Reserve resumed shrinking its balance sheet AND foreign investors stopped their buying? For all intents and purposes, what would happen IF the market’s backstops for the last quarter-century decided to call it quits?
Intuitively, interest rates would increase to a point where domestic buyers felt Treasury securities were attractively priced. Frankly, I am not exactly sure what level that might be. Given the bond market’s behavior over the last four to five weeks, or thereabouts, I suspect a lot of other people are also in the dark.
Let’s just say, since the end of August, there have been more sellers on the longer end of the yield curve than there have been buyers. What’s even better, Washington is likely going to dump more than $1.5 trillion in debt onto the markets over the next fiscal year and the one after that, etc.
It raises the question of whether a 5.25% yield-to-maturity on a 10-year Treasury is adequate compensation when it is highly plausible the Treasury will issue another $15 trillion to $20 trillion in new debt between NOW and the time it matures. (2)
Let me give you this one before you answer that question. At the end of 2016, ‘U.S. Treasury Total Public Debt Outstanding’ was an estimated $19.977 trillion. As such, it took the United States 240 years to accumulate the amount of debt it could potentially tack on over the next 10 years. (3)
Does that sound like a good credit to you? Let me ask that another way: At what level of interest does that sound like a good credit to you?
Don’t get me wrong. The U.S. Treasury has plenty of capability to continue to service the national debt. It collects way more in taxes than it pays in interest. Furthermore, Washington has the taxing authority and ammunition with which to collect wealth from the private sector. According to Federal Reserve data released Sept. 11, U.S. household net worth was an estimated $185.651 trillion in the second quarter of 2026. (4)
As such, the country is a long way from not being able to repay its debt, if it desires to do so.
However, again, what is a fair price?
Historically, and extremely loosely, my experience has been that 5% is sort of a magical, almost psychological barrier for a lot of folks. At that point, debt starts getting a little more attractive. However, I have been doing this for a long time, and I haven’t run across very many folks who are comfortable making “only” 5% on their entire investment portfolio.
To be sure, a 5% CD or individual bond is often more than adequate. But an entire portfolio of nothing but 5%? I suspect even folks who squirrel away their cash in a cigar box secretly hope for more than 5%.
Couple that with Washington’s apparent unwillingness to live within its means. What is the likelihood investors are going to turn over increasingly large amounts of money to such an undisciplined borrower? Would you continue to lend money to, say, your son if he habitually frittered it away without any attempt to get his ‘fiscal house’ in order?
Perhaps you might.
This is where the bond market currently finds itself. Awash in trillions of dollars, euros, yen and other currencies in debt issuance, with trillions more in the pipeline. I am not just talking about national governments either. There are all sorts of issuing entities: corporations, municipalities, states, provinces and individuals. The numbers boggle.
In an article Reuters published on May 6, 2026, Reuters reporter Karin Strohecker cited an Institute of International Finance report that estimated ‘global debt levels’ to be $353 trillion at the end of March 2026. (5) In July 2026, the U.S. Census Bureau projected the world population would reach 8.2 billion. (6) Let’s do some math, shall we?
$353 trillion divided by 8.2 billion works out to be about $43,049 per person. Obviously, that is a lot of money. But how much, really?
To answer this question, I went to the Federal Reserve Bank of St. Louis’ FRED website. It tracks just about any economic data point you can imagine. FRED estimated the ‘Gross Domestic Product Per Capita for World’ in current U.S. dollars was $14,406 at the end of 2025. Again, this is one estimate, and there are many. (7)
So, if we divide $43,049 by $14,406, we come up with 2.99, which works out to 299%. As such, total global debt is roughly three times annual global economic output.
That seems like it could be a problem at some point, but perhaps I am a worrywart. However, I think we would all agree that it probably wouldn’t be a good idea to keep tacking on more debt from this point. Unfortunately, that is EXACTLY what “we” are going to do.
As such, intuitively, it would make sense that the world’s borrowers should have to pay more for credit moving forward. That is UNLESS the powers that be devise some way to either make the debt disappear OR shuffle it off someplace out of sight. The latter is exactly what I expect the world’s central banks to do.
Expect the world’s central banks to announce new “quantitative easing” programs by no later than the end of 2027, and I am giving myself more grace room than I probably need. IF that doesn’t happen, interest rates will likely continue to climb as new issuance will potentially swamp the private sector’s ability to absorb it.
Laughingly, if one can laugh at such a thing, it only took 35 years for me to finally see the time when the federal budget deficit actually seemed to matter, at least as it pertained to the Treasury’s borrowing costs.
I guess you can say I wasn’t wrong all those years. I was just early.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Sources:
- Wikipedia – List of Countries by GDP (Nominal).
- Congressional Budget Office – The Budget and Economic Outlook: 2026 to 2036. February 2026.
- U.S. Department of the Treasury, Fiscal Data – What Is the National Debt?
- Federal Reserve Bank of St. Louis, FRED – Households; Net Worth, Level. Updated Sept. 11, 2026.
- Reuters – Global Debt Hits Record of Near $353 Trillion, With Signs of Move Away From US. May 6, 2026.
- U.S. Census Bureau – World Population Day: July 11, 2026. July 2, 2026.
- Federal Reserve Bank of St. Louis, FRED – Gross Domestic Product Per Capita for World. Updated June 30, 2026.
About Common Cents:
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. The opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.
Opinions and forward-looking statements are subject to change without notice and may not come to pass. Past performance is not indicative of future results. References to market indices are for illustrative purposes only. Index performance does not reflect the deduction of fees or expenses, and individuals cannot invest directly in an index. Political and geopolitical events are referenced for general context and do not represent a recommendation or prediction regarding any specific investment outcome. Links to third party articles are provided for informational purposes only. Oakworth Asset Management LLC does not control, endorse or adopt the content, opinions or recommendations expressed on third party websites. Such content may be dated and may not reflect current market conditions. Third party information is believed to be reliable but has not been independently verified. Readers should evaluate the information independently. Any reference to specific securities is provided for informational and illustrative purposes only and should not be considered a recommendation to buy, sell, or hold any particular investment. It should not be assumed that any such securities discussed were or will be profitable.
About Oakworth:
Oakworth Capital Bank, Member FDIC, Equal Housing Lender, provides commercial and private banking, wealth management and advisory services. Advisory Services, including investment management and financial planning, are offered through Oakworth Asset Management LLC, a registered investment advisor. Oakworth Asset Management LLC is owned by Oakworth Capital Bank. Investment products and services offered via Oakworth Asset Management LLC are independent of the products and services offered by Oakworth Capital Bank, and are not FDIC insured, may lose value, have no bank guarantee, and are not insured by any federal or state government agency. Because of the ownership relationship and involvement by Oakworth Asset Management LLC associates with Oakworth Capital Bank, there exists a conflict of interest to the extent that either party recommends the services of the other. For additional information about Oakworth Asset Management LLC, including its services and fees, visit adviserinfo.sec.gov.