$40 trillion US debt: A ticking clock for global markets?

The United States has crossed a debt milestone that would have been difficult to imagine a few decades ago.Its national debt has now risen above $40 trillion, while the federal government has already run a deficit of nearly $1.8 trillion in the first 10 months of the current fiscal year.In its latest report, brokerage firm Jefferies warned that deteriorating US fiscal conditions are putting upward pressure on long-term Treasury yields, creating a potential risk for equity markets. Jefferies strategist Christopher Wood has identified a rise above 5% in the 10-year US Treasury yield as a key trigger that could unsettle stocks.The numbers are drawing fresh attention from global investors because the problem is no longer just the size of America's debt. It is also the speed at which borrowing is rising, the cost of servicing that debt and the growing pressure on the US bond market. FISCAL STRAIN FOR THE USThe US national debt stood at around $40.05 trillion on August 18, up 7.8% from a year earlier, according to the report. But the deficit numbers show why the debt continues to grow.The government ran a fiscal deficit of $432 billion in July alone, the highest monthly deficit since March 2021 and a record for the month. In the first 10 months of fiscal 2026, the cumulative deficit reached $1.799 trillion. That figure is already higher than the $1.775 trillion deficit recorded for the whole of fiscal 2025.Moreover, the annualised fiscal deficit also rose to 6.1% of GDP in July, from 5.7% in the 12 months through June. In simple terms, the government is spending considerably more than it is collecting, and the gap has been widening.So, when the US runs another large deficit, it generally needs to borrow more. That borrowing adds to the already massive debt pile for the States.This is why the $40 trillion figure cannot be looked at in isolation. The bigger concern for markets is whether the US can slow the pace at which that number keeps rising.DIFFERENCE IN RECEIPTS AND SPENDING?Federal receipts fell 1.3% year-on-year in July and were down 5.7% over the past three months. Tax receipts, including tariffs, fell 8% in July and 6.4% over the three-month period.Government spending, meanwhile, moved in the opposite direction as the total federal outlays jumped 21.7% from a year earlier in July and were up 10.7% over the past three months.This is where America's fiscal problem starts becoming a global market problem as that return is reflected in the Treasury yield.As per the report, the 10-year Treasury yield recently stood around 4.69%, after touching 4.746%.The close watch on the bond market can be further seen in the recent Treasury auctions. A 10-year Treasury sale cleared at a yield of 4.683%, the highest in 19 years, while a 30-year bond auction reached 5.216%, its highest level at auction since 2001.This means that higher yields are not automatically a sign of a crisis. Investors continue to buy US Treasuries, particularly because they are still viewed as among the safest assets in global markets.But the problem is that the US government itself has to pay those higher yields when it borrows or refinances its old debt. As a result, this can make an already large debt burden even more expensive.WHY THE US PROBLEM DOES NOT STAY IN THE USThe US Treasury market sits at the centre of the global financial system.Government bonds issued by Washington are held by banks, pension funds, insurers, investment funds and foreign governments around the world. They are also widely used as a benchmark for pricing other financial assets.This means a sustained rise in US Treasury yields can have effects far beyond American government finances.The report also highlighted America's dependence on foreign capital. The US net international investment position deficit, which measures how much more the country owes to foreign investors than it owns abroad, widened sharply in recent years.This indicates that the US may have to offer higher returns to attract the capital needed to finance its deficits.GOLD TO COME OUT AS SAFE WINNER?The same fiscal problems that create risks for bonds and equities can provide support to gold.Wood has described gold as the second-best hard-asset hedge after oil and energy stocks, while also increasing his exposure to gold-mining companies.As gold does not depend on the financial strength of any one government, it also does not carry the credit risk associated with government debt.There is, however, an important catch as gold does not pay interest. Therefore, when Treasury yields rise sharply, investors have a greater incentive to hold interest-bearing assets instead.This is why the 5% level on the 10-year Treasury yield matters not only for stocks but also for gold. A sustained rise in yields could create volatility across both markets.In these circumstances, the US Treasury finds itself in a difficult position. More borrowing can mean more interest payments, higher interest payments can add to the deficit, and a larger deficit can require even more borrowing.Hence, global markets keep a close lookout on whether this cycle remains manageable for the US or does it ripple across global markets.- EndsPublished By: Radhika VermaPublished On: Aug 24, 2026 16:05 IST