The federal government’s fiscal year ended last month, and the final tally offered another stark warning about the trajectory of US debt. According to Treasury Department data released Friday, net interest payments on the national debt rose 8 per cent to $1.05 trillion in fiscal 2026 — about $2.9 billion a day, or 3.2 per cent of GDP, breaking the previous record set in 1991. Gross interest costs reached $1.36 trillion at an average rate of 3.53 per cent, more than double the rate in 2021 before the Federal Reserve’s tightening cycle.
Interest is now the third-largest line item in the federal budget, behind only Social Security and ahead of both defense spending and Medicaid. The overall deficit widened to $1.99 trillion, 12 per cent worse than fiscal 2025 and the third-largest in American history — trailing only the two COVID-era deficits. Revenue rose 3 per cent to $5.4 trillion, but spending climbed 6 per cent to $7.4 trillion. Gross debt stands at $40 trillion, with debt held by the public at $32.3 trillion — roughly 100 per cent of GDP, the highest outside the immediate aftermath of World War II.
The compounding trap
What alarms fiscal analysts is the mechanics, not just the scale. More than half of the $2 trillion deficit is attributable to financing past borrowing, not new programmes. Because the Treasury must constantly roll over maturing securities, every percentage point of unexpected yield translates into hundreds of billions in unbudgeted expense — and the 10-year yield recently touched 5.27 per cent, a level the Congressional Budget Office did not expect until well into the next decade. Even if Washington stopped borrowing for new programmes tomorrow, interest costs would keep climbing for years as old, cheap debt refinances at today’s rates.
No easy exit
Treasury Secretary Scott Bessent has been issuing more short-term debt to finance the deficit while retiring long-term obligations — a strategy that lowers near-term costs but leaves the government exposed to rate volatility. Interest is projected to be the fastest-growing part of the federal budget in the coming years, competing directly with defense, education and every discretionary priority. The CBO’s own baseline missed the mark: it projected a $1.9 trillion deficit back in February; the actual figure came in at $2 trillion.
