Rising interest costs push US debt

1/ The Committee for a Responsible Federal Budget said on May 22 that higher Treasury yields are making the federal debt outlook worse, because the U.S. has to refinance large amounts of debt at higher rates. (crfb.org) 2/ The mechanism is simple: when market rates rise, the Treasury pays more to borrow. That lifts net interest costs, which then add to annual deficits and to the total stock of debt. CBO already projects a $1.9 trillion deficit in fiscal 2026, with debt held by the public at 101% of GDP. (cbo.gov) 3/ CRFB’s latest warning builds on its May 14 analysis, which said the 10-year Treasury yield was around 4.5% and the 30-year rate around 5.0%, both above CBO’s assumptions. If rates stayed 40 basis points above projections for the next decade, CRFB estimated that would add $1.5 trillion to debt by 2036. (crfb.org) 4/ Even a shorter period of higher rates matters. CRFB said that if elevated rates lasted for only one year, they would still add nearly $200 billion to debt by 2036. (crfb.org) 5/ Market moves in May reinforced that point. CNBC reported on May 15 that the 30-year Treasury yield rose to 5.121%, the highest since May 22, 2025, and near the highest level since October 2023. Treasury’s daily rate table shows 30-year yields in 2026 have been running in the upper-4% to low-5% range. (cnbc.com) 6/ CBO’s February outlook already had interest costs rising even before any further rate shock. The budget office said outlays would be pushed higher over time by mandatory spending and increasing net interest costs, while debt held by the public would climb from 101% of GDP in 2026 to 120% in 2036. (cbo.gov) 7/ CRFB has put a broader price tag on rate sensitivity too. In an April 22 analysis, it said a 1 percentage point rise in interest rates above projections would add $3.5 trillion to debt over a decade, and that even a 0.1-point increase would raise deficits by $387 billion by 2036. (crfb.org) 8/ This is why long-term yields matter so much for the budget. The government does not refinance all of its debt at once, but persistent higher rates filter through as existing securities mature and new borrowing is issued. The result is a bigger interest bill even if spending programs and tax policy do not change. That is an inference from CRFB’s estimates and CBO’s baseline. (crfb.org) 9/ CBO said federal outlays equal 23.3% of GDP in 2026, versus revenues of 17.5% of GDP. That gap is what produces the deficit, and higher interest costs widen it unless offset elsewhere. (cbo.gov) 10/ The next places to watch are Treasury’s daily yield data and future CBO updates. If long-dated yields stay above the assumptions embedded in the February 2026 baseline, outside budget groups such as CRFB are likely to keep revising debt-cost estimates higher. (cbo.gov)