Record Debt Meets Soaring Yields
US debt has reached $40 trillion, and Treasury yields are climbing sharply, intensifying worries about the country's fiscal trajectory. When yields rise, the government must pay more interest on new borrowing and refinanced debt, squeezing the federal budget further. The 10-year Treasury yield rose to 5.23% on Friday, its highest since 2007, and the 30-year yield jumped to 5.49%, its highest since 2004. These long-term yields matter because they influence borrowing costs throughout the economy, including mortgages and other loans.[S1]
A mix of pressures is lifting yields even as America's obligations mount. Crude prices have climbed amid the Middle East conflict, large AI cloud providers are pouring hundreds of billions of dollars into infrastructure each year, the economy is holding up well, and the national debt has now reached $40 trillion. At 5.23%, the 10-year yield sits far above the Congressional Budget Office's February 2026 projection, which saw averages of 4.1% in 2026, 4.2% in 2027, 4.3% across 2028-2031 and 4.4% across 2032-2036. Costlier yields make servicing that debt more burdensome for the government.[S1]
Interest Costs and Deficit Pressures
What the US government pays to borrow is essentially set by Treasury yields. When those yields climb, the Treasury Department must pay more interest both on newly issued debt and on obligations it refinances. Interest costs already run roughly $1 trillion annually, and Fortune reports the federal budget deficit is headed toward about $2 trillion this year. Since lawmakers show scant willingness to close the gap, heavier borrowing costs could make an already enormous deficit even tougher to rein in.[S1]
After yields spiked, Sen. Jeff Merkley, the top Democrat on the Senate Budget Committee, asked the CBO for fresh estimates. He wanted the agency to assess the consequences of interest rates staying above projections. CBO Director Phillip Swagel ran a scenario in which rates come in 1 percentage point higher than the agency's baseline. That work appeared in a September letter answering Merkley's request, the CBO said.[S1]
CBO Warns of Higher Deficits and Debt
According to the CBO, steeper interest rates would widen the US deficit considerably over the long run. Setting aside broader economic feedback, the primary deficit — which leaves out net interest — would be 0.4 percentage point bigger by 2056 than in the baseline. The overall deficit would suffer far more from added interest expense. The CBO put the total deficit 4.9 percentage points above baseline by 2056. In that higher-rate world, the total US deficit would equal 14% of GDP by 2056, versus 5.8% of GDP projected this fiscal year and a 3.8% average from 1976 to 2025.[S1]
The most consequential long-run effect concerns how large the debt becomes relative to the US economy. If rates were 1 percentage point above the CBO's baseline assumption, publicly held US debt would climb to 222% of GDP by 2056 — more than twice where it stands now. Publicly held debt is presently around 101% of GDP, and the CBO's existing baseline has it at 175% of GDP in 2056. The higher-rate path would thus leave debt 47 percentage points above that baseline.[S1]
The Debt-and-Interest Cycle
This dynamic can become self-reinforcing. When rates rise, the government's interest bill grows, enlarging the deficit and forcing more borrowing. That extra borrowing can in turn drive Treasury yields up further. The CBO noted that the resulting rise in debt relative to GDP would add still more upward pressure on Treasury rates. The result is a potential debt-and-interest loop: higher yields raise interest costs; higher interest costs widen deficits and borrowing; and heavier borrowing can push rates higher again.[S1]
Mounting debt can also weigh on growth by diverting capital toward government securities. Rather than funding potentially more productive uses, some money ends up parked in Treasuries, per the CBO analysis cited by Fortune. The CBO projected GDP growth 0.1 percentage point below its baseline in the higher-interest-rate scenario. So the US economy may expand more slowly just as the government copes with costlier debt. Weaker growth makes it harder to outgrow the debt problem, since tax receipts and the broader economic base might not rise fast enough to offset climbing debt and interest costs.[S1]
