- The US debt could reach a tipping point as soon as the end of next year, BlackRock's Rick Rieder said.
- Trump's policies could add $10 trillion in debt over the next decade, according to one estimate.
- Rieder said he was watching Treasury auctions "like a hawk" for signs of waning demand for US debt.
The mountain of government debt could swell to levels the US won't be able to ignore anymore as soon as next year, BlackRock's Rick Rieder said.
The asset manager's head of global fixed income said he was concerned over the trajectory of the US debt balance, which could reach a tipping point within the first year of Donald Trump's second term in office.
Rieder speculated in an interview with Yahoo Finance on Tuesday that that turning point could involve investors no longer wanting to buy US Treasurys due to doubt that the government will be able to control its deficit spending.
Debt will become the country's "most pervasive issue" under Trump's presidency, Rieder added.
"I think markets tend to react to the shark closest to the boat. The shark on the debt dynamic is not going to be next to the boat, in January, February," Rieder said. "But it is going to get close to the boat sometime—I don't know if it's the latter part of 2025 or the beginning of 2026—unless they address the size of the spending dynamics, the amount of debt we're issuing, and obviously inflation relative to that."
Economists have noted the Trump's policies could significantly increase the federal debt balance and widen the deficit. If Trump were to follow through with all of his proposed policies, he could add as much as $10 trillion to the US debt over the next decade, according to an estimate from top economist Nouriel Roubini.
The national debt clocked in at $35.95 trillion on Wednesday, according to data from the US Treasury website, reflecting a rapid pace of government spending that's alarmed economists for years. That's because debt is inherently inflationary, and because doubts over whether the US will pay off its debt could make investors more hesitant to buy US Treasurys, which is a major source of funding for the government.
Higher interest rates in the economy have also raised debt servicing costs. The US spent $658 billion on interest expenses for the national debt in 2023, according to the Peter G. Peterson Foundation.
"What happens is that the cost of the debt in this country just keeps going up, so it eats up all the discretionary spend in the country, and then you have no fiscal flexibility. And for an administration and Congress that wants to execute change and evolution, if y ou have no fiscal flexibility, pretty hard to do that," Rieder added.
That scenario is a "tail risk" for the US economy, Rieder said. Still, he underscored the importance for Trump to create a plan that assures markets that the US will get its borrowing under control, even if that plan extends past his next four years in office.
He added he was gauging the demand for US debt nearly every day by watching Treasury auctions "like a hawk." Countries like China and Japan, which have been big buyers of US debt in the past, have pulled back in recent years, he noted.
"There are going to be periods of time where people say, you know what, I don't feel great about it. I'm going to pause," he said of demand for long-dated US Treasury bonds. "You got to be careful. So we're going to watch those auctions."