US debt tops $40t, stoking fiscal concern

The United States Treasury Department said on Wednesday that total US government debt had surpassed $40 trillion, while announcing plans to at least double the maximum size of its liquidity-support buyback operations for longer-dated Treasury securities from $2 billion to at least $4 billion per operation.

Total outstanding public debt stood at $40.05 trillion at the close of business on Tuesday, according to Treasury data, surpassing an earlier Congressional Budget Office forecast that total federal borrowing would reach $39.4 trillion by the end of fiscal 2026.

The Treasury said the larger buybacks, covering the 10- to 20-year and 20- to 30-year sectors, will run from Sept 9 through Nov 4. The move is aimed at easing liquidity pressures in the long-term bond market, but does not address underlying structural challenges, including the persistent fiscal deficit and growing national debt, experts said.

US Treasury yields rose on Tuesday despite a previously scheduled $2 billion buyback of 20- and 30-year bonds. The 30-year Treasury yield briefly climbed to 5.34 percent, its highest level since 2007, before retreating.

Following the Treasury's announcement, the yield fell further, last trading at 5.184 percent.

The sheer size and continued expansion of the US' national debt could further erode confidence in the government's fiscal credibility and the Federal Reserve's ability to maintain financial stability, experts said.

The federal government spent trillions of dollars in response to the COVID-19 pandemic and subsequently pursued tax cuts and increased military spending.

As a result, US federal debt has grown rapidly in recent years, raising concerns in the bond market and pushing Treasury yields higher. Rising interest payments have further added to the national debt.

Budget watchdog groups had anticipated crossing the $40 trillion threshold for weeks and issued stark warnings that a full-blown debt crisis could erupt unless lawmakers confront the country's unsustainable fiscal outlook and raise taxes, cut spending or do both.

"Forty trillion dollars of debt doesn't exist solely on the government's ledgers; it is felt throughout the economy and finds its way to the pocketbooks of people one way or another," said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget.

"The more we borrow, the more we exacerbate inflation, squeeze out other priorities in the budget, and leave ourselves vulnerable to emergencies at home and turmoil abroad," she said in a statement issued just after the Treasury data were released.

The $40 trillion figure was reached less than five months after the national debt reached $39 trillion and has quadrupled in less than 20 years, after taking until 1981 to reach $1 trillion for the first time, she said.

"It is staggering how predictable the fiscal decline of a global power can become," she added.

'Shooting from the hip'

Thomas Simons, chief US economist at New York-based investment bank Jefferies, said the surprise buyback announcement upends the Treasury's tradition of consistent communications about "regular and predictable" debt issuance, adding that the move feels like they "shot from the hip".

Xiong Yuan, chief economist at Chinese company Guosheng Securities, attributed the recent sharp correction in bond markets across developed economies, including the US, to mounting supplies of long-term bonds and weakening demand.

The rise in oil prices triggered by tensions in the Middle East was a direct but not primary catalyst, Xiong said.

The US Treasury's recent efforts to stabilize the market are aimed at smoothing liquidity conditions and signaling support, which could provide near-term relief, he said.

"However, such measures do not fundamentally alter the structural pressures from the US' rising fiscal deficit and the medium-term increase in its long-term bond supply," he added.

Margaret Spellings, president and CEO of the Bipartisan Policy Center, a think tank in Washington, said the current fiscal trajectory is "plainly unsustainable".

"Even in the rosiest scenarios, we're speeding toward a cliff and refusing to turn the wheel," she said in a statement. "Federal debt is already raising the cost of living and choking out other spending and investment, threatening our economy and Americans' long-term prosperity."

Agencies contributed to this story.