Macro View | A U.S. Debt Storm Is Brewing

The warning signs around U.S. government debt are getting harder to ignore. Washington’s borrowing has surged past prior limits, deficits are widening again, and the cost of servicing the debt is climbing—raising the odds of a market shock if policy doesn’t adjust soon.

The debt ceiling drama briefly eased after Congress raised the limit, but that only delays—not resolves—the structural problem. Deficits remain large, driven by higher spending and softer fiscal discipline, and new tax and spending measures are set to add trillions to the debt over the next decade. With debt-to-GDP projected to climb further, the fiscal trajectory is tilting more precariously.

The most immediate pressure point is interest costs. As rates rose from their post-pandemic lows, the Treasury now faces a heavier bill to refinance a large share of its obligations. More than a fifth of outstanding debt turns over within a year, and a substantial portion within the next several years; each roll adds exposure to today’s higher yields. Interest outlays have already overtaken major budget categories and are crowding out future fiscal space.

Markets have been tolerant so far, but that patience is not limitless. A complacent path—larger primary deficits, higher interest rates, and faster rollover—can create a negative feedback loop: rising interest costs widen the deficit, which increases issuance, which pressures rates further. In a stress scenario, that loop could spill into risk assets, the dollar, and global liquidity, given Treasuries’ central role in collateral and pricing.

What would change the outlook? A credible fiscal framework that moderates deficits over time, lengthens average debt maturity prudently, and avoids brinkmanship around the debt ceiling. For investors, the regime shift argues for selective duration exposure, vigilance on liquidity premia in Treasuries, and attention to sectors sensitive to real rates. The storm is not inevitable—but the clouds are thickening, and preparation beats prediction.