US debt tops $40 trillion as Treasury buybacks target bond yields

America's debt crossed $40 trillion this week, and the Treasury's surprise bond buybacks are exposing who still wants to own it.

The US national debt crossed $40 trillion for the first time this week, and Treasury Secretary Scott Bessent's surprise move to buy back long-term bonds has put a spotlight on who is still buying American debt. The milestone arrived as the 30-year Treasury yield touched almost 5.34 percent on Tuesday, its highest since 2007, before Bessent expanded repurchases of longer-term federal debt.

"Actions like these can make a modest difference for rates in the short term, but only reducing deficits will provide the long-term fix," said Caleb Quakenbush, director of fiscal policy at the Bipartisan Policy Center.

The debt-to-GDP ratio now stands at roughly 123 percent, near a record, while annual interest costs have topped $1 trillion — more than the $918 billion defense budget. The burden equals about $117,000 per American, and the Congressional Budget Office projects gross federal debt will reach about $64 trillion by the end of 2036, a path that risks a "doom loop" of higher borrowing costs feeding larger deficits.

The $40 trillion figure, known as gross federal debt, includes debt held by the public and intragovernmental debt. Debt held by the public stands at more than $32 trillion, according to the Committee for a Responsible Federal Budget. Domestic investors — the Federal Reserve, US banks, pension and mutual funds, insurance companies, state and local governments and households — held about 76 percent of federal debt at the end of June, Treasury data show. Foreign and international investors held $9.27 trillion, or 24.1 percent, with Japan the largest single holder at $1.12 trillion.

Who holds the other $9 trillion

The composition of buyers matters because the Treasury's yield-management tools are limited. Bessent signaled the administration could continue buybacks, which he said could exceed $4 billion per issue, and pointed to new tariff revenue as a partial offset to the deficit. JPMorgan strategists Jay Barry and Jason Hunter questioned the approach, telling MarketWatch it addresses symptoms rather than the root cause of a budget deficit equivalent to about 6 percent of GDP.

The federal budget deficit is projected to reach $1.9 trillion in 2026, or 5.8 percent of GDP, with the CBO expecting outlays of about $7.4 trillion against revenues of $5.6 trillion. The scale of the borrowing is visible in commodity terms: the total value of all gold ever mined, roughly $33 trillion at current spot prices, still falls $7 trillion short of the national debt.

The $10 trillion question

The debt has doubled in a decade, from just below $20 trillion in August 2016. It took nearly 200 years to reach $1 trillion in 1981; the most recent $1 trillion was added in less than five months after the $39 trillion mark in March. Bank of America's Michael Hartnett projects the next milestone, $50 trillion, will arrive by July 2029.

The rising debt load is already reaching household budgets. The Yale Budget Lab found that federal debt growth from 2015 through 2025 raised annual costs by $2,500 for the median home mortgage and $120 for the average auto loan, as lenders demand higher rates to compensate for fiscal risk. "While $40T itself is hard to conceptualize in total, per person it's upwards of $100k," said Abhi Gupta, the author of the Yale analysis.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called for a "No New Borrowing" commitment and a deficit target of 3 percent of GDP. "No one knows how many more of these milestones America can take," she said.

This article is for informational purposes only and does not constitute investment advice.