The 10-year yield had already been rising for several months, with the latest increase bringing it roughly one percentage point above its level before the outbreak of the Iran war, according to reports.

The sell-off has affected long-duration Treasury investments particularly sharply. BlackRock’s iShares 20+ Year Treasury Bond ETF touched its lowest intraday level since its launch in 2002, underlining the pressure on investors holding longer-maturity government debt.

The rise in yields is significant for asset allocation. When government bonds offer higher returns, they become more competitive with equities, particularly shares whose valuations depend on expectations of strong earnings growth far into the future.

Pressure on equities
US stock markets have come under pressure as investors weigh higher borrowing costs against elevated equity valuations. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all closed lower on Monday.

The S&P 500 fell 0.5%, while the Dow declined 0.3 per cent and the Nasdaq dropped 0.6%. The declines reflected both the rise in Treasury yields and weakness in technology and artificial intelligence-related shares.

Higher yields can weigh on growth stocks because future earnings are discounted at a higher rate.

This reduces the present value investors assign to profits expected years ahead.

Companies that rely heavily on borrowing may also face increased financing costs, potentially affecting investment and expansion plans.

The impact is not limited to Wall Street. Higher US Treasury yields can influence capital flows globally, affecting emerging-market currencies, government bonds and equity markets. Countries and companies that borrow in dollars may face additional pressure if US yields rise alongside a stronger dollar.

The treasury seeks to contain costs
US Treasury Secretary Scott Bessent has made long-term borrowing costs a key measure of the administration’s economic success. The Treasury has responded by increasing bond buybacks and considering measures to manage the supply of longer-dated debt.

The administration has also encouraged Japan to curb Treasury sales and opened the door to potentially reducing issuance of long-maturity bonds.

However, the measures have so far had limited effect. The 10-year yield continued to climb despite the Treasury’s efforts, suggesting that investors remain focused on inflation, fiscal deficits and the broader supply-demand balance in the bond market.

The challenge is particularly acute because higher yields increase the government’s cost of servicing its debt.

As existing bonds mature and are refinanced, elevated interest rates can gradually translate into higher interest payments, placing additional pressure on public finances.

Fed decision in focus
The Federal Reserve’s decision this week will be closely watched for clues about the future path of interest rates. Investors will assess whether policymakers view the oil-driven inflation risks as temporary or as a threat to broader price stability.

A central bank that signals a willingness to keep rates higher could reinforce pressure on the long end of the Treasury curve. Conversely, reassurance that inflation remains under control could encourage bond buying and ease yields.

For now, the 5% threshold has become a test of investor confidence. If yields remain above that level, borrowing costs could stay elevated across the economy, increasing pressure on businesses, households and governments.

The breach does not automatically signal an economic crisis. But it indicates that the bond market is demanding greater compensation for inflation uncertainty, heavy borrowing and the risks surrounding the global economic outlook.

As investors wait for the Federal Reserve’s next move, the question is whether 5 per cent will mark a temporary spike or the beginning of a more sustained period of higher long-term borrowing costs.

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He told reporters, “Canada was going to have the best trade deal in the world,” while adding that Ottawa did not raise the issue of tariff relief for medium- and ⁠heavy-duty trucks until the final hours of talks on August 21, the same day the negotiations failed.

Stating that Washington viewed those vehicles differently, Lutnick said, “It’s a whole different category. It was never raised. These were things they fit to make it end.”

As per the reports, the trade deal ⁠that fell apart would have cut the top-line tariff rate on Canadian cars and light-duty trucks from 25% to 15%.

As per Barclays, Canadian-built vehicles accounted for only about 6% of US sales in 2025. Still, as per the British bank’s estimates, if the current tariffs double, automakers including Ford Motor, General Motors, Jeep-maker Stellantis, Toyota, and Honda would face significant added costs on some of their most important models.

Simultaneously, a higher levy on vehicle parts would inflict pain across the American automotive supply chain.

Detroit auto executives, for quite some time, have been pressing their case to the Trump administration about how the tariff warfare over the past 18 months has left them in a worse position than Asian and European rivals.

While import tariffs from those markets stand at 15% due to the trade deals struck in 2025 with those nations, Trump’s levies have remained at 25% on Detroit automakers’ biggest trading partners, Mexico and Canada, with some relief on the value of their US content.

The administration reportedly floated the idea of requiring imported cars from Canada and Mexico to have half their content come from US-made parts to qualify for lower tariffs. Imports from Asia and Europe face no such content requirements.

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For General Motors, about ⁠17% of its Chevrolet Silverado pickup-truck production, its top-selling model, is located in Canada. For Stellantis, the US’ northern neighbor has emerged as the sole manufacturing site for its Chrysler Pacifica, one of its top-selling American models.

Ford, on the other hand, is set to start importing Super Duty large trucks from a plant in Oakville.

Among the non-American players, Toyota and Honda, according to Global Automakers of Canada, would ⁠be most exposed to the higher tariffs, as the two Japanese automakers accounted for more than 75% of the 1.2 million vehicles produced in the country in 2025, and many of those were shipped to the United States.

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As per the economists, the reports, if taken together, point to an acceleration in overall economic growth in the Q3. However, the Fed’s current focus should be on fighting inflation, as the crucial midterm elections are approaching.

“The July consumer spending and core durable goods shipments data point to a strong real GDP (gross domestic product) growth rate in Q3 that looks to be running at least 3%. That figure would be double the second quarter’s unrevised annualized growth rate of 1.5%,” said Kathy Bostjancic, chief economist at Nationwide.

All eyes will be upon Fed Chairman Kevin Warsh, who will deliver his debut keynote speech to the Kansas City (State of Missouri) Fed’s annual economic symposium in Jackson Hole, Wyoming, this weekend. Investors, particularly those operating in the inflation-wary government bond market, will be looking forward to the vent.

“As Jackson Hole beckons, the Fed’s challenge is clear: It still has considerable ground to cover before markets see 2% inflation as a credible outcome rather than a distant aspiration,” said Olu Sonola, head of US economics at Fitch Ratings.

Coming back to the July data, the “Personal Consumption Expenditures Price Index” increased 3.7% in the 12 months through the month, unchanged from June, the Commerce Department’s Bureau of Economic Analysis said.

At 0.2% in July, the month-over-month consumption figure was also higher than expected after falling 0.1% in June, which had been the weakest reading since April 2020.

Excluding energy and food prices, so-called core PCE (Personal Consumption Expenditures), which Fed officials use as a guidepost for inflation’s underlying run rate, held steady at 3.3% on the year while rising to 0.2% on the month from 0.1% in June.

Immediately after the data’s publication, Fed funds futures prices reflected about a 40% probability of an interest rate hike at the central bank’s September 15-16 meeting, versus about 36% right before.

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“This is data that supports a hike. The unrounded core PCE was 0.246%, so it barely missed out on rounding to 0.3%. That is a one-month annualized rate (of) nearly 3.0%,” said Omair Sharif, founder and president of forecasting firm Inflation Insights, while interacting with the Reuters.

Annual PCE shot to a three-year high of 4.1% in May after ‌the beginning of the Iran war, sending energy prices higher as the conflict shut in roughly a fifth of global oil supplies through the strategically important maritime trade route known as the Strait of Hormuz.

More than six months down the line, while the conflict has shown no signs of a final resolution, oil prices and inflation more widely have retreated from mid-spring highs, as the warfare moves on from the battlefield to the economic arena, with Washington unveiling its sanctions package against Tehran.

Talking about the Fed’s monetary policy direction, the central bank, in July, left its benchmark interest rate unchanged in the 3.50%-3.75% range, where it has been since December 2025.

However, a growing minority of policymakers still believe that a tighter policy is needed, given that inflation has been above target since February 2021 and will not get to the 2% level without further restraint.

Inflation as measured by PCE peaked at 7.2% in June 2022, and the steepest Fed rate increases ⁠since the 1980s helped put it on a path back toward 2%.

However, President Donald Trump’s second term at the White House began with a flurry of import tariffs on both the United States’ partners and adversaries, drastically changing the situation and leading to a wide range of goods being priced higher. The Iran war has further boosted those price pressures.

The broken trade negotiations between the United States and its second-largest trading partner, Canada, resulted in new levies on USD 20 billion of Canadian imports, which will also increase the pain.

At this backdrop, the BEA has left unchanged its estimate of annualised GDP ⁠growth for the Q2 at 1.5% but revised up consumer spending to 3.4% from the originally reported 3.2%, an indication that the individual consumption that supports two-thirds of American economic activity had held up through the first half of the year.

Business investment remained strong, with continued growth in AI spending negating the tariff warfare-related pressure to some extent.

Growth in final sales to private domestic purchasers, which shows how much consumers and businesses spend on investments and is an important sign of overall private consumption, was revised up to 4.2%, the highest since ⁠Q1 2023, from 3.9%.

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Corporate profits jumped by USD 400.9 billion after climbing by USD 74.4 billion in the first quarter. The ratio became the second-largest increase in profits on record, topped only by the third quarter of 2020, and was likely driven by the Trump administration’s corporate tax overhaul that went into effect this year.

Gross domestic income (GDI) rose 2.2% versus 1.2% in the first quarter. The average of GDP and GDI, also known as gross domestic output and considered a better measure of economic activity, grew at a 1.8% rate versus 1.7% in the previous quarter.

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While Canada and Mexico requested a full extension, the Donald Trump administration declined to renew USMCA in its current 16-year term. And the last-minute breakdown of the trade talks between Washington and Ottawa, followed by “tit-for-tat tariffs” from both sides, has further complicated things.

While admitting that Honda is close to full production capacity in North America and needs a new factory, the Japanese automaker’s Executive Vice President Noriya Kaihara told reporters at a roundtable in Washington that any decision regarding the venture committing to fresh investments and capacity upgrades in this part of the world will solely depend on USMCA’s continuation.

“If there is no USMCA agreement in the future, we ⁠may have to change our direction,” Kaihara said, adding the company will need to make a decision within a year or two and would like the plant to be running by around 2030.

Canada’s retaliatory measures will take effect on September 8 in response to the United States imposing 50% tariffs on USD 20 billion of Canadian products entering American shores.

“Honda will be taking a wait-and-watch approach, instead of passing on the costs of tariffs to buyers in North America,” said Kaihara.

In 2025, Hyundai Motor complained about the uncertainty about USMCA to the Trump administration, stating that the delay was hurting its investment decisions.

“Early confirmation of USMCA’s extension ‌would ⁠immediately unlock over USD 20 billion in new American investments. Every month of ambiguity slows job creation, site selection, and technology development,” the automaker said back then.

The uncertainities around USMCA come amid Honda having a memorable year in North America. The Japanese automaker had its best July in seven years. Not only did unit sales go up by 36% during the month, but interest in the company’s hybrid and other fuel-efficient models soared as well, with oil prices experiencing high volatilities since the start of the Iran war.

Honda in May scrapped its long-term EV sales target, including its goal of having EVs make up a fifth of ⁠its new car sales in 2030. It now plans 15 new hybrids by 2030. It has indefinitely suspended its Canada EV project, an USD 11 billion investment plan to produce ⁠electric vehicles and batteries.

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It also cancelled three planned EVs for the American market. To avoid potential tariff issues, Honda announced in 2025 that it would move production of its US-bound five-door Civic hybrid model from Japan to Indiana.

Uncertainties everywhere
Canada, on Tuesday, hit back at the Donald Trump administration with retaliatory tariffs on about USD 20 billion worth of US annual imports. The Mark Carney government also rolled out aid for businesses and workers, matching Washington’s latest duties dollar-for-dollar.

“The counter-tariffs on American goods will take effect on September 8 and impose duties of 15%, 25%, and 50% across around 700 products imported from south of the border,” a government statement said.

While Trump’s new 50% tariffs on USD 20 billion of Canadian imports took effect on Saturday after talks between the two countries collapsed, the Republican threatened to rename Lake Ontario, which straddles both countries, as “Lake America.” He has also promised to put 50% tariffs on auto imports from Canada from January 2027, remarks that marked a new low in relations between the longtime allies.

Additionally, the 50% tariff threat raises concerns about the future of the highly integrated automobile manufacturing and logistics network spanning the US, Canada, and Mexico, which not only contributes approximately USD 1.2 trillion to the American economy but also employs around ten million workers.

“Our dollar-for-dollar rate for rate counter-tariffs as well as a multi-billion dollar support package will protect workers, farmers, families, and businesses,” Canada’s Finance Minister Francois-Philippe Champagne said.

“We have levied the 50% tariffs on steel, aluminum, furniture, and clothing; set the 25% tariffs on cheese, appliances, and some seafood; and placed the 15% tariffs on electronics and tools,” a Canadian government official told reporters.

Canada’s retaliatory tariffs, calculated using 2024 trade figures, cover goods accounting for nearly 4.5% of Canada’s imports from the United ‌States.

Industry Minister ⁠Melanie Joly said the counter-tariffs will serve two purposes: protect Canadian businesses and apply political pressure before Americans vote in the November 3 midterm elections.

“We need to make sure that the competitors don’t have access to the Canadian market in a better way than their own… products, and that’s why the retailers need to show that from Canada. Second, we’re also targeting products that will target states in the US, and so we’re being wise and strategic ⁠to put political pressure, and that’s why we think it’s the right thing to do right now,” she remarked.

The Canadian tariffs will cover some prepared foods, perfumes and toiletries, plastics, lumber, wood pulp and paper products, carpets and clothing, apart from targeting American industrial goods, including iron and steel, aluminum, hand tools and other metal products, machinery ⁠and electrical equipment, as well as rail engines, motorcycles, furniture and gaming equipment.

Canada also unveiled a CUSD 7.5 billion package of measures featuring support for small and medium-sized businesses (SMEs), a stream for funding cash flow of companies, and support for workers at risk amid the tariff warfare.

“The Business Development Bank of Canada, a federal lender, will provide part of the support to affected businesses, offering interest-free loans of between CUSD 2.5 million and CUSD 5 million. Companies would not be required to make repayments for 36 months,” Joly said.

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Treasury Secretary Scott Bessent has tried to address the immediate market pressure by expanding the department’s buyback program for longer-dated Treasuries. The plan is designed to improve liquidity and reduce the supply of older securities in the market, potentially supporting prices and lowering yields.

But the bond market’s response has been skeptical. The Treasury doubled planned purchases to USD 4 billion per operation, yet long-term yields rose again almost immediately. Analysts cited by AP said the intervention is small relative to the size of the Treasury market and cannot by itself resolve concerns about deficits, inflation, and the government’s borrowing requirements.

The rebound also shows why lower short-term policy rates do not automatically translate into cheaper long-term borrowing. Treasury yields reflect expectations for future interest rates, inflation, and economic growth, as well as the supply of government debt and demand from domestic and overseas investors.

The Federal Reserve is adding to that uncertainty. Minutes from its July meeting showed that many officials believed higher rates could be necessary if inflation remains elevated. The Fed kept its benchmark rate around 3.6%, but the debate has become more complicated as energy prices rise and inflation remains above the central bank’s 2% target.

A Reuters poll conducted earlier this month found that most economists expected the Fed to keep its policy rate at 3.50%-3.75% through the end of the year. That cautious outlook reflects a weakening labour market and softer consumer data, but inflation remains a constraint on any aggressive easing cycle.

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For bond investors, the result is an uncomfortable combination. The economy is strong enough to prevent rapid rate cuts, and inflation is high enough to complicate a sustained decline in yields. That leaves the market vulnerable to sharp moves whenever economic data or official comments change expectations.

The consequences extend far beyond government finance. The 10-year Treasury yield is a key benchmark for mortgages, corporate bonds and a wide range of financial assets. When it rises, companies face higher refinancing costs and consumers typically encounter more expensive loans. Businesses with large capital requirements, including technology companies building data centres for artificial intelligence, are particularly exposed.

The housing market is already feeling the pressure. Mortgage rates have remained around 6.6%, according to recent market data, limiting affordability even as the Federal Reserve’s policy rate is well below its peak from the previous tightening cycle.

Higher Treasury yields can also alter equity valuations. The return available from government bonds provides investors with an alternative to riskier assets, while higher discount rates reduce the present value of future corporate earnings. That is particularly relevant for growth and technology stocks, whose valuations depend heavily on profits expected years into the future.

There is also an international dimension. US Treasuries sit at the center of the global financial system, so higher yields can draw capital towards dollar assets while tightening financial conditions elsewhere. Governments and companies in emerging markets that borrow in dollars can face higher refinancing costs, while foreign central banks must weigh the impact of changing US yields on their currencies and bond markets.

Developments overseas are also reinforcing the recent rise in yields. Global bond markets have been under pressure as investors reassess inflation, government borrowing, and the relative attractiveness of sovereign debt. Rising yields in Japan and Europe have reduced some of the traditional advantage enjoyed by US government bonds.

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Geopolitical risks are another factor. Higher oil prices linked to the conflict involving Iran have revived concerns about inflation. A renewed inflation shock would make it harder for the Federal Reserve to lower rates and could push investors to demand still higher yields on long-term Treasuries.

Markets are now watching Fed Chair Kevin Warsh for clearer guidance on the direction of monetary policy, particularly at the Jackson Hole symposium. Any indication that the central bank is prepared to tolerate higher inflation could put further upward pressure on long-term yields.

For the Treasury, the challenge is therefore larger than managing day-to-day volatility. Buybacks can improve market liquidity and influence the composition of outstanding debt, but they cannot eliminate the underlying supply of government borrowing.

Until investors become more confident that inflation is contained and Washington can stabilise its fiscal trajectory, attempts to push borrowing costs lower may continue to provide only temporary relief. The bond market is effectively demanding a more durable answer.

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His talks with the Mexican government officials were described by both sides as “constructive,” pointing to progress on steel and aluminum and efforts to replace Asian imports with more North American production.

Regarding the “tariff-for-tariff” and “dollar-for-dollar” approaches taken by the United States and Canada after the failed talks, Ottawa will impose retaliatory tariffs on imports of US steel, electronics, and other products in response to Trump’s 50% pressure tactic. The new tariffs will take effect on September 8.

Trump’s new tariffs hit Canadian sectors, including wine, furniture, dairy products, cement, clothing, fishing rods, and hockey equipment, covering some USD 20 billion of Ottawa’s exports to the world’s largest economy. These duties do not exempt Canadian products under the USMCA, which has shielded most Canadian exports to the US in the past 18 months.

“Canada will match Washington’s new tariffs dollar for dollar to protect Canadian workers, farmers, families, and businesses. You’re at war when you get attacked. We got attacked,” ⁠Carney told a press conference on Saturday (August 22).

Carney, the economist-turned-PM of Canada, has emerged as one of the few global leaders to retaliate against US tariffs and has pledged to forge new trade and military alliances, despite Canada’s dependence on the United States for nearly 70% of its exports.

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Taking a jab at Ottawa for missing “the opportunity to partner with the United States,” Greer said that no new talks were planned with Canada.

“We’re moving forward with measures that respond to Canadian retaliation. They’ve always had the best deal, and they still would have an even better deal, but they didn’t want that,” he told Fox News.

Canada’s retaliatory tariffs will cover US steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics, along with some products that Washington previously targeted in Canada, Carney said from Ottawa’s Parliament building.

“The government will release details on its response in the coming days. We cannot accept what they have offered, and we will not give what they have asked,” remarked the former central banker, while accusing the Trump administration of halting the negotiations with its last-minute demands.

“Recently, the U.S. proposed new terms that were uneconomic, unfair, and undermined the net benefits to Canada, calling into question the reliability of any deal,” he said, adding these demands included curtailing Canada’s ability to forge new trade deals.

Canada, in the coming days, will also announce support measures for industries targeted by the Uncle Sam. The latest tariffs, as per Ottawa’s estimates, could expose some vulnerable industries such as softwood lumber and wine to severe damage, leading to job losses and business closures.

“We will be mobilizing our network ⁠of businesses in all regions and all sectors to brace for impact and make the best of a bad situation,” said Candace Laing, CEO of the Canadian Chamber of Commerce.

Ontario Premier Doug Ford, one of the most vocal opponents of Trump tariffs, supported Carney’s decision to retaliate.

“I’m glad he didn’t sign that deal because it was a terrible deal. It was a bad deal for Ontario. It was a bad deal for the auto sector, the steel sector, and the manufacturing ⁠sector,” Ford told reporters on Saturday.

One of the main sticking points was the treatment of larger vehicles, with reports suggesting that Canada wanted favorable tariff terms proposed for light-duty vehicles to extend to medium- and heavy-duty trucks. However, the United States opposed it.

Confirming the reports, Carney said the US position would have excluded Canadian-made models, including Ford’s F-350, F-450, and F-550 trucks and General Motors’ Silverado, making Canadian production less competitive.

“There were also US proposals that affected ⁠Canadian culture, language, and sovereignty,” he remarked.

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While the American tariffs may end up harming Canada’s economy significantly, Carney’s tough stance against Trump may boost his popularity among the domestic audience. Polls show most Canadians oppose making any concessions to their North American neighbor.

“Canadians must stand united to defend our country against these unfair attacks on our jobs and businesses,” Pierre Poilievre, the leader of the official opposition Conservative Party, said in a statement.

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Other areas covered in the new bilateral agreement include rules of origin and trade facilitation, trade in services, digital trade, competition, and ‌economic ⁠and technical cooperation.

China has emerged as Switzerland’s third biggest trade partner after Germany and the United States, with bilateral trade amounting to 46 billion Swiss francs (USD 57.6 billion) so far in 2026.

Trade between the two countries has ⁠expanded from 31.7 billion francs in 2015 to 51.2 billion francs in 2025, stated the figures from the Swiss customs office.

The world’s second-largest economy has also become a big market for Swiss chemicals, pharmaceuticals, precision instruments, and watches.

Both sides are eyeing the year-end deadline for the updated deal’s signing. However, it will be subject to the legal review and domestic approval processes in both countries.

The development also coincides with Switzerland’s position in the midst of the US-China rivalry. Last summer, Washington imposed a 39% tariff on Swiss goods, at the time the highest rate among developed nations. A preliminary US-Swiss agreement would cap tariffs at 15%, but that deal is not legally binding yet.

Complicating things further, in July this year, Switzerland found its name among 60 countries that would face new US tariffs for allegedly not doing enough to combat forced labour. A 12.5% tariff has been imposed on Swiss goods.

Analysts view the China deal as a timely diversification for Switzerland, aimed at partially compensating for its volatile economic position that resulted from the trade uncertainties arising from the American shore. Beijing has also agreed to stricter rules on labour rights and environmental issues in a revised sustainability chapter of the deal.

Meanwhile, the Parmelin government has recommended the Swiss Parliament reject an initiative aimed at blocking a new agreement between Switzerland and the European Union (EU) that would mark ‌the biggest overhaul in bilateral economic relations in a generation.

Backed by the billionaire founders of Swiss asset manager and private equity firm Partners Group, the so-called “Kompass-Initiative” aims to protect Swiss independence by broadening the scope of compulsory referendums on state ⁠treaties.

Agreed in December 2024, the EU-Swiss deal is currently being debated in the Swiss parliament. If passed, it is likely to face a referendum in 2027 at the earliest.

The ruling Federal Council, however, sees the Kompass initiative as creating legal uncertainty, apart from disrupting Switzerland’s established democratic system and threatening legal and economic stability.

“Instead of clarity, it creates more uncertainty and problems,” Justice Minister Beat Jans told a ‌press ⁠conference.

The initiative aims to require approval for international treaties not only from a majority of voters but also from a majority of its 26 cantons, thereby increasing the threshold for passing such accords.

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The Kompass initiative also opposes the ⁠so-called “dynamic alignment” of laws under the EU-Swiss deal, in which Bern, subject to its own constitutional safeguards, adapts its legislation to relevant changes ⁠in EU law.

The Congressional Budget Office had earlier projected that gross federal debt would reach about USD 39.6 trillion by the end of fiscal 2026. The USD 40 trillion milestone arriving earlier than that projection highlights the pace at which borrowing has accelerated.Washington is also approaching another politically sensitive debt ceiling. The statutory limit is around USD 41.1 trillion, according to the Bipartisan Policy Center, meaning the government could face another confrontation over borrowing authority as early as winter 2027 if current trends continue.

Treasury Secretary Scott Bessent has sought to ease pressure in the bond market by expanding Treasury buybacks. The Treasury announced that it would double the size of its buyback operations to USD 4 billion per operation, a move intended partly to improve market liquidity and help stabilise trading in longer-dated debt.

Higher Treasury yields at the longer end tend to push up interest rates for mortgages, cars, and commercial loans. With the mountain of debt showing no signs of slowing down, Trump again repeated his frequent demand for lower rates.

Asked about whether Americans should worry about bond market volatility, Trump said, “I don’t think so at all. I think we have a compelling country, and we’re powering through these ridiculous interest rates—they’re ridiculous. Look, ‌when our country ⁠is strong, interest rates should go down.”

Talking about the Treasury, the department, in the last week reported the fourth-highest monthly deficit in the United States’ history, USD 432 billion for July, as tariff refunds turned customs receipts negative for the third month in a row and outlays for Social Security and Medicare benefits for seniors continued to grow.

The deficit for the first 10 months of fiscal 2026 has already exceeded the total gap for all of fiscal 2025, with two months to go in the current fiscal year.

Trump, a key champion of heavy spending across his two terms, saw public debt rising by USD 7.8 trillion during his first term, with more than half of it accumulating during the pandemic response over his last nine months in office.

Since Trump took office a second time in January 2025, the debt load has increased by USD 3.8 trillion, for a total ⁠growth of USD 11.6 trillion across his two terms so far.

Public debt, during Democrat Joe Biden’s tenure, increased by USD 8.4 trillion, marked by heavy COVID-19 recovery spending and big-ticket outlays for infrastructure investment, clean energy subsidies, and other priorities championed by his party.

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As per the Committee for a Responsible Federal Budget estimates, the policy choices of Trump and Biden have increased the federal debt trajectory beyond what would have accumulated under the existing spending statutes when they each took office.

Trump’s “One Big Beautiful Bill Act” will add another USD 4.7 trillion in debt, according ⁠to the nonpartisan bookkeeper for federal lawmakers.

The Republican has branded his second presidency as one focused on cost-cutting, marked by early federal agency job cuts ordered by the non-governmental Department of Government Efficiency (DOGE).

However, much of his spending reductions have targeted so-called “discretionary” programs, the smallest portion of the federal budget. While the United States spends roughly USD 7 trillion annually, and 60% of it is earmarked for so-called “mandatory” programs, including payments for Social Security, Medicare, Medicaid, and veterans’ care, the ratios generally grow to keep pace with living costs.

Another USD 1.1 trillion pays the interest ⁠on US borrowing, the cost of which rises as the debt pile grows and as interest rates climb.

The 2025 budget marked the first time debt service costs exceeded Pentagon funding.

“In the first 10 months of the 2026 fiscal year, interest costs have eclipsed Medicare healthcare outlays to become the second-largest line item in the federal budget, behind the Social Security pension system. The US is spending more to fund the retirement and healthcare costs of the ‘baby boom’ generation, straining the trust funds behind Social Security and Medicare even as payroll and income tax revenues fall short of covering federal costs,” the Committee for a Responsible Federal Budget noted.

For Treasury, buybacks alone cannot solve the underlying fiscal imbalance.

The USD 40 trillion milestone is therefore less important as a round number than as a warning about the trajectory of US borrowing.

For decades, Unlce Sam’s government debt has benefited from the dollar’s reserve-currency status and the depth of the Treasury market. That provides Washington an extraordinary capacity to borrow.

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But that privilege does not make debt costless.

If deficits remain large while interest rates stay elevated, an increasing share of federal revenue will go toward servicing old borrowing rather than financing new investments or public services.

The central question for investors is no longer whether the US can borrow. It is how much it will eventually have to pay to keep doing so.