U.S. debt interest costs top $1 trillion annually

Annual interest payments on U.S. federal debt have surpassed $1 trillion. This figure now exceeds total U.S. defense spending. Treasury Secretary Scott Bessent is under pressure to stabilize yields. The debt burden continues to rise despite intervention efforts.

The Congressional Budget Office projects national debt will reach 108 percent of GDP by 2030. It is expected to hit 120 percent by 2036. Interest on existing bonds is a primary driver of this growth. The low-rate borrowing window from the pandemic era is closing.

Treasury buybacks fail to lower yields

The Treasury committed to doubling long-dated buybacks to $4 billion per operation. The 30-year Treasury yield fell briefly after the announcement. It quickly bounced back to previous highs. The market remained skeptical of the move.

The Federal Reserve can bend the yield curve with larger purchases. Its daily purchases peaked at $75 billion during the pandemic. The Treasury lacks this scale. It funds long-dated buybacks by selling short-dated debt.

Dollar reserve share declines steadily

The dollar’s share of global reserves has dropped significantly. It fell from nearly 70 percent in 2000 to under 59 percent in 2024. Japan remains the largest holder of U.S. debt. It has historically bought 25 cents of every surplus dollar in Treasuries.

Bessent proposed using the Foreign and International Monetary Authorities Repo Facility. This would allow Japan to access dollars without selling Treasuries. The facility has seen little use since the pandemic. The goal is to relieve pressure on the U.S. bond market.

Fiscal discipline remains elusive

The administration shows no sign of fiscal restraint. The debt market is liquid but facing structural stress. Interest rates on government borrowing must stay below economic growth. This balance has held for two decades but is at risk. Source GN auto markets/bonds: sovereign debt notes the growing instability.