U.S. debt tops $40 trillion as borrowing costs and fiscal pressures mount

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U.S. debt tops $40 trillion

Highlights

U.S. public debt reaches $40.047 trillion on Tuesday, more than doubling from $19.95 trillion at the start of 2017, driven by pandemic borrowing and persistent fiscal deficits.
Long-bond yields jump to their highest in nearly two decades after a $25 billion 30-year Treasury auction, as declining foreign demand increases market volatility and term premiums rise.
Treasury reports a $432 billion July deficit, with interest costs in fiscal 2025 surpassing Pentagon spending and set to become the second-largest budget item after Social Security in fiscal 2026.

Debt milestone and market response

As reported by Reuters, citing the U.S. Treasury Department, total public debt outstanding reaches $40.047 trillion on Tuesday, including $32.266 trillion in Treasury securities held by the public and $7.782 trillion in intra-governmental holdings.

The federal debt has more than doubled from $19.95 trillion since Donald Trump first takes office in January 2017. About one-third of that increase comes during two years of heavy borrowing tied to COVID-19 responses under Trump and former President Joe Biden, while broader tax-and-spending imbalances account for the rest.

Budget watchdog groups have been warning for weeks that the U.S. is approaching the threshold, with some saying a broader debt crisis could emerge unless lawmakers raise taxes, cut spending, or do both. Margaret Spellings, chief executive of the Bipartisan Policy Center, says federal programs are spending far more than the government collects and warns that debt is already lifting living costs and squeezing other investment.

Investors are also demanding higher compensation to hold longer-dated U.S. government debt. After a $25 billion auction of 30-year Treasuries clears at the highest yield since 2021, long-bond yields on Tuesday climb to their highest levels in nearly two decades, while the term premium on 10-year Treasuries rises to its highest level in more than 12 years.

On Wednesday, Treasury Secretary Scott Bessent announces a doubling of buyback sizes for 10- to 30-year Treasuries to at least $4 billion per operation in a bid to push long-bond yields lower. Oxford Economics analyst John Canavan writes that foreign demand for U.S. debt, which accounts for nearly one-third of Treasury holdings, has been declining over the past year, leaving more bonds in the hands of price-sensitive buyers and potentially increasing market volatility.

Deficit trends and policy drivers

The Treasury reports last week that the U.S. posts its fourth-highest monthly deficit on record, at $432 billion for July, as tariff refunds turn customs receipts negative for a third straight month and Social Security and Medicare outlays continue to rise. The deficit for the first 10 months of fiscal 2026 already exceeds the total shortfall for all of fiscal 2025, with two months still remaining in the current fiscal year.

Public debt rises by $7.8 trillion during Trump's first term, with more than half of that increase accumulated during the pandemic response in his final nine months in office. Since Trump returns to office in January 2025, the debt load increases by another $3.8 trillion, bringing total growth across his two terms so far to $11.6 trillion.

During Biden's term, public debt increases by $8.4 trillion, driven by COVID-19 recovery measures as well as spending on infrastructure and clean energy subsidies. The Committee for a Responsible Federal Budget says the policy choices of both Trump and Biden push the debt path above what would have occurred under pre-existing spending laws when each took office.

The Congressional Budget Office estimates Trump's second-term legislative package, the One Big Beautiful Bill Act, adds another $4.7 trillion to debt. Although Trump frames his second presidency around cost-cutting, many reductions target discretionary programs, while roughly 60% of the annual U.S. budget of about $7 trillion is tied to mandatory spending including Social Security, Medicare, Medicaid and veterans' care.

Interest costs are adding to the strain as the debt stock grows and rates remain elevated. Debt service in fiscal 2025 exceeds Pentagon funding for the first time, and in the first 10 months of fiscal 2026 interest costs surpass Medicare spending to become the second-largest item in the federal budget after Social Security.

In our earlier article on the U.S. Treasury’s expanded buyback operations, we explained the decision to double liquidity-support repurchases for 10–20 year and 20–30 year Treasuries from $2 billion to at least $4 billion per operation. We noted the move was intended to ease strained market liquidity and steady the long end of the curve after a sell-off drove 30-year yields to multiyear highs.

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