Treasury data released this week shows that U.S. national debt now stands at $40 trillion, with the government now expected to spend more than $1 trillion in interest on the debt in the fiscal year of 2026. Rising debt means higher yields, which can mean pricier mortgages, slower hiring, and weaker stocks.
In a surprise move earlier this week, the Treasury Department doubled bond buybacks – a clear attempt to ease surging bond yields. It worked for one day. On Wednesday – the 30-year Treasury yield fell as much as 15 basis points intraday, its biggest drop in at least the past year. The 10-year yield tumbled as well. And major US stock indexes climbed on the relief. But, by the end of the week, yields started rising again and the stock market struggled to move higher.
It took almost 200 years for America’s national debt to reach $1 trillion for the first time back in 1981. Jumping to America’s 250th year, we are spending more than that just on interest payments on our debt.
For the week, the Dow fell 0.85%, the S&P lost 1.43%, and the Nasdaq declined 2.05%.
Future Wealth’s View
The Treasury’s announcement does little to address the underlying issues pushing bonds higher, which include unsustainable fiscal deficits and rising inflation expectations. Higher Treasury yields ripple through basically every corner of our life – they raise mortgage rates and other borrowing costs, while also making it more expensive for companies to borrow, invest, and grow.
The major issue with persistent inflation is that it can be a self fulfilling prophecy to some extent. If consumers expect prices to rise long term, they more or less can become accustomed to higher prices and will keep spending if they have the means which leads to a K-shaped economy where the wealthy keep spending and middle to lower income households can’t afford to keep up with the rise in prices.
While the US national debt is 126% compared with the size of the economy, the number is irrelevant if the US economy can continue to grow at a robust pace. That matters because economic growth means more tax revenue, which can pay for spending, whether that’s on government programs or interest payments. With enough growth, the debt problem could eventually be managed. But, without sufficient growth, the US economy will be mired in a cesspool of higher taxes, high interest rates, high inflation and slowing economic conditions.
None of us want to be around when those conditions become the norm.