Surging government bond yields pose a major threat to public finances as debt-servicing costs climb, the OECD warned on Wednesday, urging nations to rein in spending. Stefano Scarpetta, the OECD's chief economist, noted that rising borrowing costs stem partly from investor concerns over fiscal sustainability, with debt-to-GDP ratios climbing steadily since the financial crisis.

In its interim economic outlook, the OECD reported that average 10-year benchmark bond yields among G7 countries have reached 4 per cent this year—their highest since 2008. Energy subsidies introduced by governments to cushion households and businesses have added fiscal pressure, with only half of those measures deemed properly targeted. Across the OECD, interest payments exceeded $2tn last year, or 3 per cent of GDP, and are set to rise further. France's interest bill is projected to grow by a quarter this year, already surpassing defence spending in several countries.

To manage debt risks, governments are increasingly issuing short-term bonds, which heighten vulnerability to rate increases. The US plans to issue up to $1tn in Treasury bills maturing within 12 months. Despite these challenges, the OECD expects G20 economies to grow 3.1 per cent this year, supported by AI investment, technology exports, and resilient oil markets, though analysts caution that Brent crude near $100 a barrel and ongoing geopolitical tensions could weigh on global output.