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CBO Lowers Long-Term Debt Forecast as Treasury Yields Fall

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06/25/2019 | 10:16am EDT

By Kate Davidson

The Congressional Budget Office on Tuesday lowered its forecasts for interest rates over the next three decades, amid a marked decline in U.S. government-bond yields since late last year.

The agency estimated the cost of servicing the government's growing debt load will continue to rise between now and 2049, but not as much as previously thought.

In its annual long-term budget report, CBO projected yields on the 10-year Treasury note would increase from 2.9% at the end of 2018 to 3.8% in 2029 and 4.6% in 2049 -- a step down from its June 2018 forecast, when it saw rates rising to 4.8% by 2049.

Lower rates in the coming years would mean a smaller share of government spending devoted to servicing the federal debt.

CBO expects debt payments, the fastest growing portion of the federal budget, will rise from 1.8% of gross domestic product in 2019, to 3% in 2029 and 5.7% in 2049, below last year's estimate of 6.3% in 2048.

That would boost total federal spending to 28.2% of GDP, the highest since World War II, when defense spending soared.

Despite lower rates, federal deficits are projected to rise as government outlays continue to outpace federal tax collections. CBO said federal deficits as a share of GDP would rise from 4.2% in 2019, to 4.5% in 2029 and 8.7% in 2049., well above the 2.7% average over the past 50 years.

Those figures would be even higher if Congress votes later this year to boost federal spending above caps enacted in 2011 that are set to take effect in fiscal year 2020, or if lawmakers vote to extend tax cuts under the 2017 tax-law overhaul.

"The prospect of such large deficits over many years and the high and rising debt that would result, poses substantial risks for the nation and presents policymakers with significant challenges," , CBO Director Phillip Swagel said in a statement Tuesday.

The report anticipates that overall federal debt would rise from 78% of GDP in 2019, to 92% of GDP in 2029 and 144% in 2049, the highest in the nation's history by far, CBO said.

That is also slightly below last year's estimate, reflecting lower projected emergency spending on natural disasters, higher revenues and lower interest rates.

Write to Kate Davidson at kate.davidson@wsj.com

Corrections & Amplifications

This item was corrected at 11:13 p.m. ET to show that the Congressional Budget Office expects debt payments will rise to 5.7% of gross domestic product in 2049, below last year's estimate of 6.3% in 2048. An earlier version incorrectly said last year's CBO estimate was 6.3% of GDP in 2049.

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