Treasury yields have sprung to multiyear highs, forcing the U.S. government to pay a lot more in interest and putting pressure on the budget.

The U.S. government is expected to pay an additional $1.1 trillion in interest over the coming decade, according to the Congressional Budget Office’s latest estimates. Interest costs are on pace to surpass defense this year as one of the largest government expenses in the budget. Only Social Security and Medicare are forecast to be bigger burdens in the coming years.

Markets have shown few signs of stress, but here’s what investors are watching.

How rising rates are hitting the budget

The pandemic sent rates to zero and sparked a surge in borrowing that added to years of mounting federal debt. The Treasury Department stepped up bond issuance to a record $23 trillion last year. The cost of paying for that then climbed as the Federal Reserve raised interest rates to multiyear highs above 5%.

America is expected to spend $870 billion, or 3.1% of gross domestic product, on interest payments this year. That is nearly double the annual average of 1.6% of GDP since 2000. And interest costs are projected to reach 3.9% of GDP by 2034.

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