The $40 trillion debt milestone arrived as Treasury yields hit multi-decade highs, mortgage rates climbed to 6.65 percent, and diesel prices topped $5.50 a gallon — a convergence that threatens to define the midterm election campaign.
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US debt tops $40 trillion as yields hit 19-year high
The $40 trillion debt milestone arrived as Treasury yields hit multi-decade highs, mortgage rates climbed to 6.65 percent, and diesel prices topped $5.50 a gallon — a convergence that threatens to define the midterm election campaign.
US federal debt crossed $40 trillion this week, pushing 30-year Treasury yields to a 19-year high of 5.3 percent as war and tax cuts compound a fiscal path toward 120 percent of GDP.
"I hope Secretary Bessent is right, but there are questions," said Michael Strain, economic policy research director at the American Enterprise Institute, responding to the Treasury chief's claim that the deficit has "very likely" peaked.
The Treasury sold $25 billion of 30-year bonds at a 5.216 percent yield Thursday, the highest auction rate since 2001, following a $42 billion 10-year note sale that cleared at 4.683 percent — the steepest borrowing cost for that maturity since 2007. The federal government is on track to run a roughly $2.1 trillion budget deficit this fiscal year, according to the Congressional Budget Office, with net interest costs projected to exceed $1 trillion in fiscal 2026.
The milestone arrives less than two years after Trump won the presidency on promises to cut prices and balance the budget. Instead, the Iran war has pushed gasoline prices up about 40 percent to $4.11 a gallon, diesel to $5.58, and 30-year mortgage rates to 6.65 percent — up from 5.98 percent before the conflict began in February. GDP grew just 1.5 percent annualized in the second quarter, far below Commerce Secretary Howard Lutnick's 5 to 6 percent forecast and Bessent's 3 percent target.
Debt Doubles in a Decade to $40 Trillion
The $40 trillion figure represents the cumulative result of decades of borrowing, but the pace has accelerated sharply. Federal spending has grown 96 percent over the past decade to $7.3 trillion while tax revenue rose 65 percent to $5.3 trillion, more than doubling the national debt from $19 trillion, according to Charlie Bilello, chief market strategist at Creative Planning. The debt has added more than $550 billion since July 1 alone.
The CBO projects publicly held debt — the measure economists watch — will climb to about 120 percent of GDP within a decade and roughly 175 percent within 30 years, driven by Social Security, Medicare, and rising interest costs. Annual interest expense is forecast to reach $2.1 trillion by fiscal 2036, consuming 19 percent of federal spending.
Gas at $4.11, Mortgages at 6.65 Percent
The Strait of Hormuz, which carries about 20 million barrels of oil daily, has been effectively closed during the war, offsetting gains from record US production. The Energy Information Administration expects US crude output to rise just 200,000 barrels per day this year.
"Trump's war has squandered America's energy advantage," said Art Berman, a Houston-based energy consultant.
The housing market is feeling the pressure as well. TD Securities analyst Jaret Seiberg said the White House has "no choice" but to focus on lowering rates after the recent uptick, "even if the relief they can offer is only temporary."
Consumer confidence sits near historic lows, and polls show Democrats now lead Republicans on economic issues ahead of November's midterms. Cornell University economics professor Eswar Prasad said the administration's interventions in currency and bond markets "smack of desperation" and risk worsening market sentiment.
Bessent has pledged to "at least double" purchases of long-term Treasuries and announced plans for deficit-reduction measures, but the intervention failed to stem the yield rise and instead pushed the dollar lower. The Treasury chief has set a goal of cutting the deficit to 3 percent of GDP by 2028, arguing that business investment incentives will expand the economy's productive capacity and generate future tax revenue.
"That is a hit now to the deficit, but we are creating productive assets for future growth which will be paying taxes down the line," Bessent said.
This article is for informational purposes only and does not constitute investment advice.
[1] Trump's "Big Trouble": $40 Trillion Debt, 6.5% Mortgage Rates and $5 Diesel Prices[2] National debt tops $40 trillion after doubling in less than a decade, Treasury data shows[3] Treasury yields hit multi-decade highs amid surging national debt[4] US Treasury Yields Hit Multi-Decade Highs as Debt Nears $40 Trillion, Charlie...[5] US National Debt Tops $40 Trillion
