The debt spiral has begun
This article first appeared on SchiffGold.
The US government has borrowed nearly $450B in the last three months. While this is a gargantuan sum of money, it annualizes to ~$1.9T which would be the smallest year of borrowing since 2022. Unfortunately, the trend more likely to hold is the borrowing seen in Feb and March which clocked in at nearly $550B in just 2 months. Why?
And that is just to name a few of the reasons!
Note: Non-Marketable consists almost entirely of debt the government owes to itself (e.g., debt owed to Social Security or public retirement)
Figure 1: Month Over Month change in Debt
When looking at the YTD figure through the first 1/3 of the year, the US government has only borrowed half a trillion dollars. At that pace, borrowing could fall to $1.5T for the year. Again though, as mentioned above, this is unlikely to be the result for the year.
Figure 2: Year Over Year change in Debt
One good piece of news is that the Treasury has strengthened their cash position to $1T.
Figure 3: Treasury Cash Balance
The chart below shows both the maturity of the debt and average interest rate. The blended interest rate has stabilized around 3.1%. More concerning is the average maturity of the debt is now around 5.9 years. Lower average maturity means the government will have to roll over more debt each year. It increases the risk if the appetite for US debt starts to slow, which is exactly what former Treasury Secretary Hank Paulson highlighted a few weeks ago.
Figure 4: Weighted Averages
The true danger facing the government is still in the massive interest currently being paid on the debt. It has finally crossed over $1T per year! As shown in the chart, about half of this is concentrated in Notes, which is debt maturing between 2 and 10 years.
Figure 5: Net Interest Expense
A lot is unknown about how Warsh will manage interest rates, but assuming only one more cut, combined with the rolling maturity of the debt, we can forecast out the cost of the debt going forward. Again, the Treasury left “debt affordability” in the rearview mirror in 2021. The Treasury is now absolutely hemorrhaging cash on debt service costs, set to rise over $1.2T in 2027.
Figure 6: Projected Net Interest Expense
Speaking of debt issuance and rollover, the chart below shows the forecasted debt maturing for 2-10 year maturities. Debt rolling over will be $600B higher in 2026 than it was in 2025. There will be another $500B increase in rollover in 2027. This will bring the total to $3.4T! This is all just existing debt, nothing new. That means in 2027 total note issuance could exceed $5T which greatly increases our interest rate risk.
Note “Net Change in Debt” is the difference between Debt Issued and Debt Matured. This means when positive it is part of Debt Issued and when negative it represents Debt Matured
Figure 7: Treasury Note Rollover
The yield curve has gone back to positive sloping between the 2 and 10 year. The Treasury was borrowing short-term the entire time it was inverted which seems like an odd decision. The current thinking is that Warsh will lower short-term rates and allow more assets to roll off the Fed balance sheet. This will likely steepen the curve which will add more pressure to medium and long-term rates. As shown above, this is where the debt is concentrated which will cause more interest payment pain in future years.
Figure 8: Tracking Yield Curve Inversion
The chart and table below show how the debt and interest has changed over time.
Figure 9: Total Debt Outstanding
Category | # Years Ago | Bills | Notes | Bonds | Other | Total Mrkt | Nonmarketable |
|---|---|---|---|---|---|---|---|
Balance ($B) | 0 | 6,622 | 15,938 | 5,383 | 2,734 | 30,677 | 8,291 |
0.5 | 6,593 | 15,506 | 5,173 | 2,727 | 29,999 | 8,042 | |
1 | 6,060 | 14,908 | 4,958 | 2,650 | 28,576 | 7,638 | |
3 | 3,943 | 13,774 | 4,083 | 2,486 | 24,286 | 7,172 | |
20 | 965 | 2,410 | 527 | 382 | 4,283 | 4,072 | |
% of Total Balance | 0 | 17% | 40.9% | 13.8% | 7% | 78.7% | 21.3% |
0.5 | 17.3% | 40.8% | 13.6% | 7.2% | 78.9% | 21.1% | |
1 | 16.7% | 41.2% | 13.7% | 7.3% | 78.9% | 21.1% | |
3 | 12.5% | 43.8% | 13% | 7.9% | 77.2% | 22.8% | |
20 | 11.6% | 28.8% | 6.3% | 4.6% | 51.3% | 48.7% | |
Avg Interest Rate % | 0 | 3.62% | 3.22% | 3.4% | 0.84% | 3.13% | % |
0.5 | 4.04% | 3.12% | 3.34% | 0.77% | 3.15% | % | |
1 | 4.26% | 2.98% | 3.27% | 0.69% | 3.09% | % | |
3 | 4.35% | 1.85% | 3.03% | 0.43% | 2.31% | % | |
20 | 4.32% | 3.9% | 7.71% | 2.54% | 4.34% | % | |
Annualized Interest ($B) | 0 | 239.7 | 513.7 | 183.3 | 22.9 | 959.6 |
|
0.5 | 266.3 | 483.6 | 172.9 | 21.0 | 943.8 |
| |
1 | 258.5 | 444.7 | 162.1 | 18.2 | 883.5 |
| |
3 | 171.4 | 255.1 | 123.6 | 10.8 | 560.8 |
| |
20 | 41.7 | 93.9 | 40.6 | 9.7 | 186.0 |
| |
Avg Maturity (Yrs) | 0 | 0.20 | 3.37 | 20.41 | 5.93 | 5.90 |
|
0.5 | 0.20 | 3.38 | 20.56 | 5.87 | 5.87 |
| |
1 | 0.19 | 3.42 | 20.74 | 5.94 | 5.97 |
| |
3 | 0.21 | 3.38 | 21.50 | 5.92 | 6.17 |
| |
20 | 0.19 | 2.88 | 16.24 | 9.19 | 4.48 |
| |
Impact of .25% ($B) | 0 | 16.6 | 39.8 | 13.5 | 6.8 | 76.7 | 20.7 |
0.5 | 16.5 | 38.8 | 12.9 | 6.8 | 75.0 | 20.1 | |
1 | 15.2 | 37.3 | 12.4 | 6.6 | 71.4 | 19.1 | |
3 | 9.9 | 34.4 | 10.2 | 6.2 | 60.7 | 17.9 | |
20 | 2.4 | 6.0 | 1.3 | 1.0 | 10.7 | 10.2 | |
Bid to Cover Ratio | 0 | 3.01 | 2.62 | 2.39 | |||
0.5 | 2.91 | 2.91 | |||||
1 | 2.9 | 2.56 | 2.5 | ||||
3 | 2.69 | 2.46 | 2.36 | ||||
20 | |||||||
Data as of: Apr 2026 | |||||||
The US fiscal situation is completely out of control. With the government set to exceed $40T in total debt within a few months, one has to ask how and when does this all end. $1T in annual interest payments is a massive thorn in the side of the US budget situation. Adding $2T a year in new debt ($60B in interest per year) means that in 5 years the US will cross $50T with an extra $600B per year in interest.
Keep in mind that is a very friendly and conservative estimate. It’s more likely that debt will increase much faster than that which also causes an increase in interest rates. $50T will likely arrive much sooner and at that point the debt spiral could really start to take hold. Be sure to insure and protect yourself against this inevitable situation.