U.S. Debt Hits $32.3 Trillion as Interest Costs Hit Record 3.4% of Spending

The U.S. closed fiscal 2026 with $32.3 trillion in publicly held debt — exactly 100% of GDP — and a record $1.1 trillion in interest costs that now consume 3.4% of the federal budget.

That reckoning landed on the same week Europe-based Scope Ratings reaffirmed America's AA- sovereign grade, three notches below the top tier and two steps below the AA+ scores held by Moody's, Fitch and S&P Global Ratings. Scope left its outlook at stable.

What does the 5.27% Treasury yield mean for the deficit?

The 10-year Treasury yield sat at 5.27% on Friday, well above the 4.3% the Congressional Budget Office projected for 2028 to 2031 and the 4.4% penciled in for 2032 to 2036. The Committee for a Responsible Federal Budget estimates that yields running just one percentage point above CBO's path would add $3.5 trillion to the debt over the next decade.

Scope expects primary deficits — those excluding interest — to hold near 3.5% of GDP. The damage comes from debt service itself.

"This trajectory points to an unsustainable medium-term fiscal path and leaves the sovereign increasingly exposed to shifts in market sentiment and financing conditions," Scope wrote.

Why are interest payments rising so fast?

The Treasury has tilted issuance toward short-term notes and away from long-duration bonds, a strategy that began under the Biden administration and intensified under Treasury Secretary Scott Bessent through buybacks of longer-dated paper. The trade cuts rollover risk in calm markets. It punishes the Treasury when yields spike, because more debt comes due at higher rates within shorter windows.

Hedge funds have absorbed the supply. They have replaced foreign central banks as marginal buyers in the $32 trillion Treasury market, adding volatility because price-sensitive traders move faster than reserve managers.

How vulnerable is the U.S. to a market shock?

Scope listed what still anchors the credit: a strong economy, the dollar's reserve-currency status, the Federal Reserve, and the deepest, most liquid capital markets on earth. Those strengths, however, cannot offset the arithmetic of compounding debt service. Without stronger growth or fiscal adjustment, Scope projects general government debt will approach 160% of GDP by 2036.

The structural pressure comes from what Scope calls "structural expenditure pressures" combined with limited political appetite for fiscal reform. CRFB now expects higher interest payments and lower tariff revenue than CBO assumed.

"Based on evidence from the past year, we now expect much higher interest payments and lower tariff revenue going forward, which could send deficits and debt surging well beyond [CBO's] projections," CRFB said in a statement.

What does the debt ceiling add to the picture?

The current $41.1 trillion debt ceiling is on track to be reached by early 2027. The Treasury can deploy "extraordinary measures" to delay default for several months. Scope's baseline assumes Congress will raise or suspend the limit, but the agency flagged the political risk.

"While Scope's baseline assumes that policymakers will ultimately agree to raise or suspend the debt limit, the post-midterm political landscape could increase the scope for prolonged partisan standoffs," Scope wrote. "Repeated debt-ceiling episodes continue to highlight weaknesses in fiscal governance and contribute to periodic market volatility."

What is the next test for fiscal policy?

The federal fiscal year turned on Thursday with the U.S. running a $2 trillion deficit for fiscal 2026, equal to 6.2% of GDP. Interest is now the second-largest line item in the budget, ahead of defense and Medicare. With each Treasury auction, the U.S. leans harder on buyers who care most about price, in a market that has already shown it can deliver a 5.27% yield. The next debt-ceiling fight — and the next leg higher in yields — will decide whether 2027's borrowing plan still pencils out.