The largely expected news came just hours after Treasury Secretary Scott Bessent unexpectedly announced the Treasury’s latest attempt to rein-in long-term borrowing costs from multi-year highs, the most important component of the growth in debt. The Treasury stunned the market when it said, just two weeks after the latest Refunding Announcement where it should have made this change, that it was ramping up the support for longer-dated securities by “increasing, by at least double, the size of liquidity support buyback operations for longer-dated nominal coupon securities (the 10-year to 20-year sector and the 20-year to 30-year sector).”
The announcement that sent yields plunging, if only for the time being.
Remarkably, it was less than 5 years ago that US debt hit $30 trillion back in January 2022, illustrating the rapid growth in federal borrowing needs. And there’s no end in sight.
As Bloomberg notes, “Republicans have long opposed revenue-raising tax increases,” while Democrats are best known for spending like drunken sailors to maximize socialist central planning, and both parties are loathe to sign on to politically toxic cuts to healthcare and retirement benefits for seniors. Many observers anticipate Congress and the administration of the day will only act if forced by a financial-market disruption.
That won’t stop them from talking about it all the time, though, as both parties at least pretend to understand that the US is on a catastrophic collision course should debt growth continue at this pace, and if the AI bet – which is now an all-in for virtually everyone – fails to dramatically boost productivity. Bessent, for one, said a key reason he got involved in politics was to help tackle deficits running at a pace unprecedented for times outside of major wars, pandemics or depressed job markets. So far he has failed catastrophically, and worse, he is doing precisely the kind of activist issuance “Twisting” for which he bashed his predecessor, Janet Yellen.
Economists, the Congressional Budget Office and Wall Street all see little or no progress in coming years for the deficit-to-gross domestic product ratio.
“Optically, I’m sure crossing thresholds like $40 trillion will focus attention on the issue in the near term,” said Matthew Luzzetti, chief US economist at Deutsche Bank AG. “But it does not represent a magical threshold for debt dynamics, and projections have anticipated this outcome for some time.”
More important, Luzzetti said, is the climb in US Treasury yields, which is steadily increasing the cost of servicing the record debt load. Last Thursday, the department’s latest 30-year bond auction resulted in the costliest such sale in a quarter century. A 10-year auction a day earlier drew the highest financing cost at that tenor since 2007, and only today’s announcement which sent yields tumbling prevent today’s 20Y Treasury auction from pricing at the highest yield on record.
As buyers demand higher yields, that in turn drives up the Treasury’s borrowing needs. With two months left to go in the fiscal year, the government’s tally for interest costs so far for 2026 is $1.37 trillion – a 20% increase on the same period a year before. That in turn adds to the debt, potentially fueling further investor calls for higher rates, in a pattern known as a “doom loop.”
Hellbound and Down 