US National Debt Hits $40 Trillion; Treasury Moves to Cap Yields

The U.S. national debt breached $40 trillion for the first time, a milestone that highlights the accelerating pace of federal borrowing and deepening fiscal strain. The Treasury Department confirmed the figure Wednesday, the Associated Press reported, noting that defense spending, social programs and rising interest payments drive the bulk of federal outlays.

Each new trillion-dollar increment is arriving faster. According to ZeroHedge, it took the U.S. 200 years to reach its first $1 trillion in debt but only 95 days to add the latest. Total debt has grown by one-third in less than five years after hitting $30 trillion in January 2022.

Hours before the debt milestone was announced, Treasury Secretary Scott Bessent unveiled an unexpected step to cap long-term borrowing costs, ZeroHedge reported. The Treasury said it would "increase, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities" — covering the 10- to 20-year sector and the 20- to 30-year sector. The announcement sent yields plunging, at least temporarily, and came just two weeks after the department’s latest Refunding Announcement, where such a change would normally be made.

The underlying pressure on yields remains intense. ZeroHedge reported that last week’s 30-year bond auction was the costliest such sale in a quarter century, and a 10-year auction a day earlier drew the highest financing cost for that tenor since 2007. Without Bessent’s intervention, a 20-year auction scheduled for Wednesday risked pricing at a record high yield.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said crossing the $40 trillion mark is not a "magical threshold" for debt dynamics, according to ZeroHedge. "Optically, I’m sure crossing thresholds like $40 trillion will focus attention on the issue in the near term," Luzzetti said. "But it does not represent a magical threshold for debt dynamics, and projections have anticipated this outcome for some time." He added that the more pressing concern is the climb in Treasury yields, which steadily increases the cost of servicing the record debt load.

Interest costs are already eating an outsized share of the federal budget. With two months left in the fiscal year, the government’s interest tally for fiscal 2026 stands at $1.37 trillion — a 20% increase from the same period a year earlier, ZeroHedge reported. A semi-annual coupon payment of roughly $85 billion on Monday was the largest on record. Interest costs now rank as the third-largest budget category, surpassing healthcare and trailing only Social Security, which commands $1.6 trillion. Gross interest is on track to overtake Social Security by 2026, ZeroHedge noted.

Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, wrote in a note cited by ZeroHedge: "The federal budget is the enemy within. It is the greatest threat to the foundations of economic progress, U.S. international economic standing, and national security." He added, "The only reason for optimism should be material actions to rein in the sea of red ink. There are no such material actions."

The political dynamic remains deadlocked. ZeroHedge reported that Republicans oppose revenue-raising tax increases while Democrats support expansive spending, and both parties avoid politically toxic cuts to healthcare and retirement benefits. Economists, the Congressional Budget Office, and Wall Street all see little or no progress in the deficit-to-GDP ratio in coming years.

Bessent, for his part, has said that tackling deficits was a key reason he entered politics, but so far the deficit has only widened. ZeroHedge noted that Bessent’s activist "Twisting" of the yield curve mirrors the very strategy he criticized his predecessor, Janet Yellen, for using.

The debt spiral creates a self-reinforcing "doom loop," ZeroHedge warned. As buyers demand higher yields, the Treasury’s borrowing needs increase, driving up interest costs, which in turn add to the debt. "The only time there can be material actions is when the bond vigilantes crash the market," ZeroHedge wrote, arguing that Bessent’s intervention merely delays that reckoning by weeks or months.