US debt hits trillion as soaring Treasury yields raise interest costs, widen the deficit and put more pressure on the US economy and debt outlook.

Updated on: Sep 27, 2026, 17:22:09 IST

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US debt has reached $40 trillion, while Treasury yields are rising sharply, adding to concerns about the country’s debt outlook. Higher yields mean the US government has to pay more interest when it borrows money, putting additional pressure on the federal budget.

The 10-year Treasury yield climbed to 5.23% on Friday, its highest level since 2007. The yield has risen by more than 1 percentage point from its level just before the Iran war began, Fortune reported.

US Treasury yields rise

The 30-year Treasury yield also jumped to 5.49%, reaching its highest level since 2004. These longer-term Treasury yields are important because they influence borrowing costs across the US economy, including mortgages and other loans.

Several factors are pushing yields higher at the same time as US debt keeps growing. Oil prices have risen because of the Middle East conflict, AI hyperscalers are spending hundreds of billions of dollars a year, the US economy remains strong, and total US debt has reached $40 trillion.

US debt hits $40 trillion

Treasury yields are now much higher than the long-term levels previously expected by the Congressional Budget Office (CBO). The CBO had expected the 10-year Treasury yield to average 4.1% in 2026, 4.2% in 2027, 4.3% from 2028 through 2031 and 4.4% from 2032 through 2036, according to its February 2026 forecast.

The current 10-year yield of 5.23% is therefore well above the CBO's forecast for this year and the coming years. That matters because the higher the yield, the more expensive it becomes for the US government to finance its huge debt.

US debt interest costs

Treasury yields effectively help determine how much the US government pays to borrow money. When yields rise, the Treasury Department can face higher interest costs as it issues new debt and refinances existing debt.

US interest payments are already costing the government about $1 trillion a year. At the same time, the federal budget deficit is on track to reach about $2 trillion this year, according to Fortune. There is also little sign of political agreement to bring the deficit down. That means rising borrowing costs could make an already large deficit even harder to control.

CBO higher rate scenario

The recent jump in Treasury yields prompted Sen. Jeff Merkley, the ranking Democrat on the Senate Budget Committee, to seek updated calculations from the CBO. He asked the agency to examine what could happen if interest rates remain higher than expected.

CBO Director Phillip Swagel examined a scenario in which interest rates rise by 1 percentage point above the agency's baseline forecast. The analysis was included in a September letter responding to Merkley's request, according to the CBO.

The CBO found that higher interest rates would make the US deficit much larger over time. Before taking broader economic effects into account, the primary deficit — which excludes net interest payments — would be 0.4 percentage point larger by 2056 than under the baseline scenario.

US deficit could rise

The total deficit would be hit much harder because of higher interest costs. The CBO estimated that the total deficit would be 4.9 percentage points larger by 2056 compared with its baseline forecast. That shows how strongly rising interest costs can add to the debt problem. Even if the underlying deficit excluding interest does not rise dramatically, the cost of servicing the debt can push the overall deficit much higher.

Under the higher-interest-rate scenario, the total US deficit would reach 14% of GDP by 2056. That compares with 5.8% of GDP expected this fiscal year and an average of 3.8% between 1976 and 2025, according to the CBO.

US debt to GDP

The biggest long-term impact would be on the amount of debt compared with the size of the US economy. Publicly held US debt would reach 222% of GDP by 2056 if interest rates were 1 percentage point higher than the CBO's baseline assumption.

That would be more than double today's level. Publicly held debt is currently about 101% of GDP, while the CBO's current baseline forecast for 2056 is 175% of GDP. The higher-rate scenario would therefore put debt 47 percentage points above that baseline.

Higher rates, higher debt

The problem can also feed on itself. Higher interest rates increase the government's interest bill, which adds to the deficit and requires more borrowing. More borrowing can then push Treasury yields even higher. The CBO said that the resulting increase in debt relative to GDP would put additional upward pressure on Treasury interest rates.

This creates a possible debt-and-interest cycle. Higher yields increase interest costs; higher interest costs increase deficits and borrowing; and heavier borrowing can put further pressure on interest rates.

US economy and debt

Rising debt can also hurt economic growth because more capital gets directed toward government debt. Instead of being used for potentially more productive investments, some capital is funneled into Treasury securities, according to the CBO analysis cited by Fortune.

The CBO estimated that GDP growth would be 0.1 percentage point lower than its baseline under the higher-interest-rate scenario. This means the US economy could grow more slowly while the government is dealing with higher debt costs.

Slower growth makes it harder for the US to grow its way out of the debt problem. If the economy expands more slowly, tax revenues and the overall economic base may not grow quickly enough to offset rising debt and interest costs.

Can US growth cut debt?

Treasury Secretary Scott Bessent has argued that stronger economic growth could help with the debt burden. Bessent said this could be possible if US economic growth reaches 3%, according to Fortune. But the CBO warned that its higher-rate scenario could become even worse after broader economic effects are included. Higher debt can push interest rates higher, while higher rates can further increase debt, creating additional pressure on the economy.

Swagel said the economic effects could push Treasury rates above the initial 1-percentage-point increase used in the scenario. In other words, the CBO's calculation does not necessarily represent the full potential impact if higher debt and weaker growth continue feeding into higher borrowing costs.

The CBO also examined the opposite scenario: what if the US somehow kept its debt-to-GDP ratio at today's 101% level? This was presented as a comparison and would require much stronger fiscal restraint than in the baseline outlook. Under that lower-debt scenario, the primary deficit would be 2 percentage points smaller by 2056 than in the CBO's baseline. The total deficit would be 5.6 percentage points smaller, according to the CBO.

Lower US debt could boost growth

Publicly held debt would also be dramatically lower under that scenario. It would be 74 percentage points below the CBO's baseline projection for 2056. The lower-debt scenario would also provide a small boost to economic growth. The CBO estimated GDP growth would be 0.05 percentage point higher than its baseline, even before accounting for additional economic spillover effects.

The CBO said stronger investment could create another growth benefit. With more capital available to workers, productivity could increase, encouraging more labor and generating additional economic growth. The key issue is that the US is entering this period of higher Treasury yields with an already enormous debt burden. With debt at $40 trillion and annual interest costs already around $1 trillion, higher yields can make the cost of borrowing rise further.

Soaring Treasury yields therefore make the $40 trillion debt problem more difficult in two ways: they raise the government's interest bill and can slow economic growth. The CBO's scenarios show that if higher rates persist, debt and deficits could rise substantially more than under its baseline outlook.

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