The Treasury reported that total federal debt had reached about USD 39.9 trillion on Monday (August 17), leaving the world’s largest economy only a small step from the landmark figure.
The acceleration has partly lost government revenue following the US Supreme Court’s decision to invalidate President Donald Trump’s “Liberation Day” tariffs, which has partially driven the acceleration.
The Congressional Budget Office (CBO) had projected six months ago that total borrowing would reach USD 39.4 trillion during the current fiscal year. The shortfall in tariff revenue has instead forced the Treasury to borrow more quickly to meet government spending commitments.
The fiscal deterioration comes as the US bond market is already under pressure. Long-term Treasury yields have risen sharply this year amid concerns over persistent inflation, large budget deficits, heavy government borrowing, and geopolitical uncertainty.
On Tuesday (August 18), the yield on the 30-year Treasury briefly climbed to its highest level since 2007, while recent auctions have also shown investors demanding significantly higher returns.
At a recent auction, the 10-year Treasury note was sold at a high yield of 4.683%, the highest in 19 years, while a 30-year bond auction cleared at 5.216%, a 25-year high.
The rise in yields means the government must pay more to refinance maturing debt and fund new deficits, creating a feedback loop in which higher interest costs can themselves contribute to larger borrowing requirements.
The CBO expects the federal budget deficit to reach USD 1.9 trillion in fiscal 2026, equivalent to 5.8% of gross domestic product. It projects the deficit will widen to USD 3.1 trillion, or 6.7% of GDP, by 2036.
Rising net interest costs account for much of the deterioration, with interest payments projected to increase from about USD 1 trillion this year to USD 2.1 trillion by 2036.
The scale of the interest burden is already becoming visible in government finances.
The implications extend beyond government accounts. Treasury securities form the benchmark for borrowing across the US economy, so sustained increases in government yields can feed into mortgage rates, corporate borrowing costs, and other forms of credit.
Yet the recent rise in yields does not indicate that investors are abandoning US debt. Treasury auctions continue to attract solid demand, including from foreign central banks, institutional investors, and asset managers.
The more immediate concern is the scale and persistence of borrowing. CBO projections show debt held by the public rising from 101% of GDP in 2026 to 120% by 2036, surpassing the previous post-war record. Gross federal debt is projected to reach USD 64 trillion by 2036 under the agency’s baseline assumptions.
The approach of USD 40 trillion also brings the next debt-ceiling confrontation closer. Congress set the statutory borrowing limit at USD 41.1 trillion in 2025, but analysts now expect Treasury to approach that threshold as early as the beginning of next year. That could force lawmakers to raise or suspend the ceiling again to prevent a disruption in government payments.
For markets, the central question is no longer simply whether Washington can continue borrowing. It is how much investors will demand to finance it. With deficits remaining large and interest costs rising, the journey beyond USD 40 trillion is likely to keep fiscal sustainability and Treasury yields firmly in the spotlight.