The U.S. government is emerging from the pandemic on a surprisingly strong fiscal footing but at a greater risk of getting tripped up by bond markets.

On one hand, the federal debt held by the public soared during the pandemic as revenues fell and the government spent trillions to keep businesses and households afloat, from 80% of economic output to just about 100%. That level of debt is the highest since the government financed the World War II militarization effort and is set to grow indefinitely thanks in large part to the baby boom generation aging and being owed retirement and healthcare benefits that are not funded.