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.

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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.

Through July, the tenth month of fiscal 2026, US interest payments had reached about USD 931 billion, 10.6% above the corresponding period a year earlier. Interest costs have become the third-largest federal spending category, behind Social Security and Medicare.

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.

Higher yields can also make bonds more attractive relative to equities, potentially altering the flow of capital across financial markets.

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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.

Higher yields themselves can encourage buyers, particularly when US government bonds offer substantially better returns than many other developed-market sovereign securities.

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.