US Interest Costs Hit Record $1 Trillion, Risking Debt Snowball

(Bloomberg) -- The US government's debt interest burden reached a record high for fiscal 2026, eating up a growing share of federal revenue and risking a snowballing of borrowing that could leave the country more vulnerable to economic shocks.

For the year through September, net interest costs came to $1.05 trillion, up more than 8% from the $970 billion in fiscal 2025, Treasury Department data showed Friday. The Peter G. Peterson Foundation, a research group, sees the costs reaching 3.2% of gross domestic product, surpassing the previous record, reached in 1991. GDP figures for last quarter are due later this month.

The increase reflects both that there's a lot more debt to pay interest on — one key measure exceeds $32 trillion, some $10 trillion more than just five years ago — but also much higher interest rates. The average rate the government paid on marketable Treasuries was 3.52% at the end of September, more than double the 1.47% five years before.

What's worse is that current yields are even higher, with the current gauge from Bloomberg's US Treasuries index now around 5%. The rise in rates has prompted Treasury Secretary Scott Bessent into extraordinary steps to contain the move, though economists argue the nation remains distant from crisis. Demand at debt auctions has proved solid, and higher borrowing costs aren't hindering credit flows.

"It doesn't seem like a crisis — it's kind of a slow eating away" of fiscal capacity, said Louise Sheiner, a senior fellow at the Brookings Institution and former economist at the Federal Reserve. What's unknown is the point at which "some lenders are going to decide not to lend to us — and if that happens, that could lead to a fiscal crisis," with the Treasury losing access to raise money from markets, she said.

Gennadiy Goldberg, head of US interest rates strategy at TD Securities, said one thing staving off deeper concerns for now is that the nation's nominal GDP growth rate — which is key for things like corporate revenues and tax receipts — is higher than US Treasury yields. The nominal year-on-year GDP gain for the second quarter was 6.3%. "A fiscal apocalypse is not upon us just yet," Goldberg wrote in a recent note.