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Scope Ratings says interest costs now drive US debt toward 160% of GDP
Scope Ratings held the US at AA- and said interest costs will carry debt toward 160% of GDP by 2036 while the primary deficit stays near 3.5%. That makes the forecast depend on Treasury yields and on how the post-midterm Congress handles the debt limit.
The Investor · Invest desk
What happened
- The 10-year Treasury yield stands at 5.27%, above the CBO's assumed 4.3% for 2028 to 2031 and 4.4% for 2032 to 2036.
- The Committee for a Responsible Federal Budget estimates that yields about a point above the CBO path would add roughly $3.5 trillion to the debt over a decade.
- Fiscal 2026 closed with a $2 trillion deficit and $1.1 trillion of interest, a record 3.4% of GDP that topped defense and Medicare.
- Treasury has shifted borrowing toward short maturities, and Scott Bessent's buybacks issue short-term notes to retire longer-term bonds.
- Scope expects the $41.1 trillion debt ceiling to be reached by early 2027, with extraordinary measures buying several months after that.
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Why it matters
- constraint A budget that closed the whole $900 billion primary deficit would still run a deficit of about $1.1 trillion from interest alone, so programme cuts by themselves cannot balance the books at current rates.
- exposure With the debt tilted short, a sustained rise in yields shows up in the federal interest bill within the life of bills and notes, years sooner than it would under long-dated financing.
- precedent Scope cut the US during the 2025 debt-ceiling impasse, so the next ceiling fight under a post-midterm Congress is the next test of the AA- grade.
Take interest out of the Committee for a Responsible Federal Budget's year-end tally and the fiscal 2026 primary deficit comes to about $900 billion, or 2.8% of GDP [1]. Interest made up 55% of the gap [2]. Scope puts the primary deficit higher, near 3.5% of GDP, and expects it to hold there while debt-servicing costs drive further deterioration [2]. The two sources also count debt differently. Scope's 160% projection is general government debt, while the CRFB's 100% of GDP is federal debt held by the public [5][12].
On rates, the current 10-year is 0.97 points above the CBO's assumption for 2028 to 2031 and 0.87 points above its figure for the years after [3]. Both gaps are close to the one-point overshoot in the CRFB scenario [4]. Spread evenly across ten years, the CRFB's $3.5 trillion comes to about $350 billion a year, roughly a third of fiscal 2026's interest bill [4]. Scope expects net interest to reach what it called an "exceptionally high" level by 2031 [17]. "This trajectory points to an unsustainable medium-term fiscal path and leaves the sovereign increasingly exposed to shifts in market sentiment and financing conditions," Scope said [6].
Treasury's financing choices tighten the link to the market. Borrowing short avoids the higher rates that long bonds carry [7]. It also means more debt comes due sooner, and each rollover costs more when yields spike [8]. Treasury is, in effect, declining to lock in ten-year money at 5.27% [3][7]. The buyers are less patient as well: price-sensitive hedge funds have taken a bigger share of the $32 trillion market from foreign central banks, which were steadier holders [9].
Yields could fall back toward the CBO path, and the CRFB overshoot would shrink with them [4]. Growth could come in stronger, the one route besides fiscal adjustment that Scope names [5]. Or the debt limit could move markets before the interest bill does. "While Scope's baseline assumes that policymakers will ultimately agree to raise or suspend the debt limit, the post-midterm political landscape could increase the scope for prolonged partisan standoffs," Scope said [11]. Its AA- sits two notches below the AA+ grades from Moody's, Fitch and S&P [1]. Fitch's chief sovereign analyst said in January that another US downgrade so soon after its 2023 action would be highly unusual, according to Investing.com [16].
I think the interest reading holds on these numbers. With a primary deficit Scope calls stable, the part of its 160% path that moves is the cost of carrying the debt [2][5]. The counter-case is in the same material. Scope also blames "structural expenditure pressures" and limited political will for reform [14], and the CRFB said it expects interest payments to run much higher and tariff revenue lower from here, and that this could push deficits and debt well past the CBO's projections [13]. Revenue and spending still move. A 10-year held near 4.4% for several years would remove the overshoot behind the CRFB's $3.5 trillion and would undercut the view [3][4].
What to watch
- Whether the 10-year holds above 5% into 2027 or drifts back toward the CBO's 4.3% to 4.4% path, which decides whether the CRFB's $3.5 trillion scenario applies.
- The date Treasury starts extraordinary measures against the $41.1 trillion ceiling, and the post-midterm Congress's first vote on raising or suspending it.
- Whether Treasury extends its buyback programme or moves issuance back toward long bonds at current yields.