US government debt crossing the $40 trillion mark has raised fresh concerns over the country's fiscal position, while rising Treasury yields could pose a bigger risk to financial markets, according to an ANI report that quoted global brokerage Jefferies. Investors are watching whether the rise in long-term borrowing costs could put further pressure on US equities.
US total public debt rose 7.8% year-on-year to $40.05 trillion as of Aug. 18, according to Jefferies. At the same time, the fiscal deficit continued to widen. The US recorded a monthly deficit of $432 billion in July, the highest for the month.
For the first 10 months of fiscal year 2026, the deficit stood at $1.799 trillion, already higher than the full-year FY25 deficit of $1.775 trillion. The annualised fiscal deficit-to-GDP ratio also rose to 6.1% in July from 5.7% in June, as per the report.
ALSO READ: Bond Markets Jolted: US 30-Year Yields Hit 19-Year Highs On Fiscal Concerns, Oil Surge
Treasury Yields Under Pressure
Jefferies said the worsening fiscal position is one of the factors pushing long-term Treasury yields higher.
The pressure has been visible in recent Treasury auctions. The $42 billion 10-year Treasury auction on Aug. 12 saw the yield rise to 4.683%, its highest level since 2007. A $25 billion 30-year Treasury auction a day later cleared at 5.216%, the highest since 2001.
The 10-year Treasury yield later rose to 4.746%, while the 30-year yield touched 5.337%, its highest level since June 2007.
Jefferies noted that weaker employment data and relatively contained inflation have not led to a sustained rally in long-term bonds.
5% Yield Seen As Key Risk
For equity markets, Jefferies sees higher Treasury yields as the main near-term risk. A move above 5% in the 10-year Treasury yield could become an important trigger for stocks.
The pressure on US finances is being compounded by higher government spending and weaker receipts. Federal government outlays rose 21.7% year-on-year in July, while receipts declined 1.3%. National defence spending increased 19.9% during the month, while net interest and entitlement spending rose to 98.4% of annualised government receipts, highlighting the growing fiscal burden.
The yield was around 4.69% after recently touching 4.746%. 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.
Jefferies also noted that the Treasury's growing reliance on short-term funding and intervention to support the long end highlights the constraints facing monetary policy.
What It Means For Indian Markets
For Indian markets, the bigger concern is not the $40 trillion US debt level itself but the impact of rising US Treasury yields. If the US 10-year yield moves towards 5%, Indian equities could face pressure as higher US bond yields may make emerging-market assets less attractive and trigger FII outflows. A stronger dollar could also put pressure on the rupee, while Indian bond yields may move higher. However, the impact could vary across sectors, with a weaker rupee potentially supporting IT exporters even as higher global yields weigh on overall market valuations.
ALSO READ: US Treasury Yields, SEBI Action, Iran War, IPO Buzz And More — The Week That Was
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
