US interest costs top the defence budget as debt passes $40 trillion

US federal interest payments have hit $1.25 trillion a year, exceeding the defence budget^1,4. Total US government debt has surpassed $40 trillion^3,6, having topped that level last month⁵. The Congressional Budget Office projects the federal budget deficit for the current fiscal year at $2.1 trillion^2,5.

Measured against the size of the economy, the CBO says interest costs will climb from 3.3% of GDP, with its 2036 projection assuming no major fiscal shock¹. Fortune described the mechanism plainly: growing interest payments create a cycle in which the government must borrow more simply to cover the interest, leaving less room for everything else^3,4.

The market response, and the criticism of it

Yields are the pressure gauge. US Treasury yields are approaching a 4.8% threshold, with the Treasury now competing with corporations for the same pool of capital^6,9. Reporting notes that foreign investors have been favouring US equities over Treasuries as bond demand weakens⁵.

The Treasury’s intervention in the bond market has drawn direct criticism. Former Goldman Sachs commodities chief Jeff Currie has called Treasury Secretary Scott Bessent’s buybacks a textbook case of financial repression⁷, and described them as creating what he sees as a buy signal for gold⁸. Yields have come back up since Bessent’s initial intervention in the bond market⁹.

Why it matters to investors

Debt service that exceeds defence spending¹ is not a talking point; it is a claim on future issuance. Every dollar of interest is financed by new borrowing into a market where demand is already described as weakening⁵, which is the definition of the cycle Fortune sets out⁴.

The financial repression label matters because of what it implies for asset allocation. If the Treasury is managing the long end administratively rather than letting it clear^7,8, then the risk-free rate stops being a clean price signal, and duration stops being a clean hedge. That is the reasoning behind Currie’s gold argument⁸, and it is why the 4.8% level is being watched as a threshold rather than a number⁶.

What to watch

The 4.8% yield level is the immediate marker, along with whether fiscal stress spills into other assets^6,9. Beyond that, watch the CBO’s deficit path against its $2.1 trillion projection², and whether foreign demand for Treasuries continues to shift toward equities⁵. The other line to watch is whether the buyback programme is expanded or defended, since that is where the financial repression argument will be tested in practice^7,8.