US National Debt Hits $40 Trillion as Interest Costs Raise New Market Risks

The US national debt has exceeded $40 trillion for the first time, intensifying concerns about rising interest expenses, heavy Treasury issuance and the long-term sustainability of federal finances.

Treasury Department data showed total public debt outstanding reached approximately $40.047 trillion on August 18. That consisted of about $32.266 trillion in debt held by the public and $7.782 trillion in intragovernmental holdings. The milestone arrived only five months after gross debt crossed $39 trillion.

Key Takeaways

• Total US federal debt reached $40.047 trillion, including $32.266 trillion held by the public.
• The national debt increased by approximately $2.9 trillion over the past year, an average of nearly $8 billion per day.
• The Congressional Budget Office expects net interest spending to exceed $1 trillion in fiscal 2026.
• Growing Treasury supply and higher interest costs could pressure bond prices, equity valuations and private-sector borrowing.

Debt Growth Accelerates Toward a Historic Milestone

The $40 trillion figure represents gross federal debt, which includes securities owned by investors, banks, pension funds, the Federal Reserve and foreign governments, as well as debt held by federal trust funds.

Debt held by the public is generally considered the more economically important measure because it reflects the government’s borrowing from financial markets. At more than $32 trillion, that portion of the debt is already roughly equivalent to annual US economic output.

The Joint Economic Committee estimated that the national debt had increased by $2.88 trillion during the 12 months through August 7. That translated into an average increase of $7.91 billion per day, or more than $91,000 per second. The committee also calculated gross federal debt at roughly $116,480 per person and $295,494 per US household before the $40 trillion threshold was crossed.

Persistent budget deficits, expanding Social Security and Medicare costs, defense spending and interest payments have all contributed to the increase. Emergency measures during the pandemic accelerated borrowing, but debt has continued rising rapidly even after those programs ended.

Interest Costs Become a Bigger Budget Constraint

The size of the debt alone does not determine whether it is sustainable. The government’s financing cost, economic growth rate and tax revenue are equally important.

That calculation has become less favorable as older, low-interest securities mature and must be refinanced at higher yields. The average interest rate on marketable federal debt reached 3.443% in July 2026, compared with 1.476% five years earlier.

The Congressional Budget Office projects net federal interest spending of approximately $1.04 trillion in fiscal 2026, representing 3.3% of gross domestic product. By 2036, annual interest costs could reach $2.14 trillion, or 4.6% of GDP.

CBO also expects debt held by the public to rise from about 101% of GDP in 2026 to 120% in 2036, exceeding its post-World War II record. Over the same period, the annual federal deficit is forecast to expand from 5.8% to 6.7% of GDP.

Larger interest payments leave less fiscal capacity for defense, infrastructure, healthcare and economic support during recessions. They also create a compounding effect: the government must issue additional debt partly to pay interest on existing obligations.

Treasury Yields Add Pressure Across Financial Markets

The debt milestone arrives as investors demand higher yields to hold longer-dated government bonds. The 30-year Treasury yield recently reached 5.31%, its highest level since 2007, while the benchmark 10-year yield traded near 4.65%.

Rising Treasury yields affect markets far beyond Washington. Government bond rates serve as reference points for mortgages, corporate loans and consumer credit. Higher yields can therefore restrict household spending and business investment while increasing refinancing costs for heavily indebted companies.

They can also pressure equity valuations. Technology and other growth stocks are particularly sensitive because higher discount rates reduce the present value of expected future earnings. At the same time, attractive risk-free bond yields can encourage investors to shift money away from equities.

The dollar’s response may be more complicated. Higher US yields can initially support the currency by attracting capital, but persistent fiscal deterioration could eventually weaken confidence in dollar-denominated assets.

Treasury Expands Bond Buybacks

The Treasury has announced plans to double the maximum size of certain long-term bond buybacks from $2 billion to at least $4 billion per operation between September and early November. The program is designed to improve liquidity in older securities as borrowing costs and market volatility increase.

However, buybacks do not reduce the national debt because the purchases are financed through new Treasury issuance. Their purpose is to support market functioning rather than repair the underlying budget imbalance.

Crossing $40 trillion does not by itself indicate an immediate funding or default crisis. The United States borrows in its own currency and operates the world’s largest government bond market. Nevertheless, the speed of debt accumulation and the growing share of federal revenue devoted to interest make fiscal policy an increasingly important risk for bonds, stocks and the broader economy.