US public debt has crossed $40 trillion as its fiscal position deteriorates and bond yields edge towards levels that could shake equity markets. According to reports from The Economic Times, Jefferies strategist Christopher Wood identified a move above 5% in the 10-year US Treasury yield as the "obvious trigger point" for near-term equity risk. The yield stood at 4.69% after recently touching 4.746%, with the 10-year Treasury auction yield reaching 4.683%, the highest since 2007, while the 30-year auction yield climbed to 5.216%, its highest since 2001. As per The Economic Times, Wood remains bullish on hard-asset hedges, recommending oil and energy stocks as the best hedge against disruption surrounding the Strait of Hormuz, with gold the second-best option.
US total public debt rose 7.8% from a year earlier to $40.05 trillion as of August 18, Treasury data showed. The latest data from the US Treasury shows that, as of Aug. 18, the US government's "Total Public Debt Outstanding" is now at $40.047426 trillion and comes on the heels of new projections that the annual US deficit is projected to reach $2.1 trillion when the government's fiscal year ends on Sept. 30. The fiscal deterioration is clearly one of the forces putting upward pressure on long-term Treasury bond yields. The US fiscal deficit widened to $432 billion in July, its highest monthly level since March 2021 and a record for the month, with the annualised fiscal deficit-to-GDP ratio increasing to 6.1% in July from 5.7% in June. The deficit for the first 10 months of the fiscal year reached $1.799 trillion, already exceeding the $1.775 trillion recorded for the whole of fiscal 2025.
Total federal receipts fell 1.3% year-on-year in July and declined 5.7% over the past three months. According to The Economic Times, tax receipts, including tariffs, dropped 8% in July and 6.4% over the three-month period because of tariff refunds. Spending moved sharply in the opposite direction, with total government outlays jumping 21.7% from a year earlier in July and increasing 10.7% over the past three months. National defence expenditure rose 19.9% in July and 10.9% over the three-month period. At the same time, net interest and entitlement spending rose to 98.4% of annualised government receipts, highlighting the growing fiscal burden. A recent report from the Congressional Budget Office outlined how government receipts grew 3% last year — failing to keep pace with spending that is up by 5%.
Foreign portfolio holdings of US equities climbed 24.5% year-on-year to a record $24.5 trillion at the end of June. As reported by The Economic Times, annualised foreign net purchases surged to a record $919 billion in the 12 months through June as the artificial-intelligence boom intensified. Another pressure point is Japanese investors, who held $1.12 trillion of US Treasuries at the end of June, down from a recent high of $1.24 trillion in February. Wood expects pressure on Japanese institutions to sell long-term Treasuries to intensify as domestic bond yields rise. The government debt held by the public — a more conservative measure that removes what is known as intragovernmental holdings — stands at a slightly lower but still historically high level of $32.265799 trillion.
The national debt has now more than doubled in less than a decade during the presidencies of Donald Trump and Joe Biden, and has quadrupled in less than 20 years. According to The Economic Times, the US is firmly on pace to break the all-time record debt-to-GDP ratio set in 1946 after World War II. The Congressional Budget Office projects that without major policy changes, the ratio of federal debt held by the public to GDP will rise further to 120% in 2036 and to 175% by 2056. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, noted that government overspending in July alone had set a pace of $14 billion in new debt every single day. She called for lawmakers to try to find a way to reduce deficits to 3% of GDP, which currently stands at 5.8%. Treasury Secretary Scott Bessent's decision to at least double long-term Treasury buybacks could help contain the rise, but the underlying fiscal pressures remain.
