Invest1 publisher2 min readPublished
US interest costs climb to about $1.08 trillion as the 10-year yield tops 5%
US net interest payments rose $111 billion this year to roughly $1.08 trillion, on figures a former Senate budget staffer published in Fortune. With debt adding $1 trillion every five months, the bill compounds whether the 5.04% yield reflects oil and inflation or fiscal risk.
The Investor · Invest desk
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What happened
- The Federal Reserve raised rates last week for the first time since 2023, the same week the 10-year yield hit its highest level since 2007.
- Net interest in fiscal 2025 reached $970 billion, about $150 billion more than the US spent on national defense.
- Interest is the fastest-growing major program in the federal budget and is projected to more than double to $2.1 trillion by 2036.
- Congress has enacted none of its 12 appropriations bills this year and has pushed its deadline to December 11 so members can campaign first.
- Moody's in 2025 became the last of the three major rating agencies to strip the US of its AAA rating, after S&P in 2011 and Fitch in 2023.
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Why it matters
- cost Each month of new borrowing financed at the 10-year rate adds roughly $10 billion a year to the interest bill, a charge taxpayers carry for the life of the bond.
- constraint Interest already takes 13% of the budget, about half the 27% discretionary share that dominates the spending fights, and those fights leave it untouched.
- precedent Congress has finished its budget process on time four times since the 1974 Budget Act, so bondholders have little history of a fiscal correction arriving through the regular process.
Set this year's interest bill [1] against the $40 trillion of gross debt outstanding by August [3] and the blended cost comes out near 2.7% [2]. It is a crude ratio. It still sits about 2.3 percentage points below the 5.04% the 10-year yield reached last week [1][3], and each maturing bond refinanced near current yields pulls that average up. "We're rolling over an adjustable-rate loan the size of the economy. Last week, the rate adjusted," the former Senate budget staffer wrote in Fortune [9].
On cause, the author was careful. "Oil prices and inflation lit that match, but mounting government debt sits on every analyst's list of why yields keep climbing," the staffer wrote [10].
That leaves three ways for this to go. If the yield move is mostly inflation, it unwinds when oil does, and the debt goes back to growing without much change in what it costs to carry. If yields hold near 5% for any reason [1], the stock of debt reprices bond by bond and the interest line compounds. The third is the scenario the CBO keeps writing into its long-term outlooks, in which investors lose confidence, rates rise abruptly and the dollar's reserve status erodes [15].
I think the evidence supports the second reading and does not yet show the third. The cash cost is already in the budget, with a deficit that reached $2 trillion with a month of the fiscal year still to run [4]. A fiscal risk premium inside the 5.04% is a separate claim [1], and this record cannot separate it from inflation. If oil and inflation ease and the 10-year falls well back below 5% while the debt keeps growing at its current pace, the market is not yet charging Washington for its borrowing [1]. If the yield holds while inflation cools, it is.
The reserve-currency advantage is the author's larger worry. It is why "the world lends us money cheap," and it "rests on confidence that America pays its bills," the staffer wrote [16]. Congress's own record does little for that confidence. In the summer of 2022 a motion to proceed to a Senate budget resolution, brought by then-Senator Mike Braun with the author's help, failed 34-63 [13]. "That wasn't a vote against our budget; it was a vote against debating any budget at all," the author wrote [17].
What to watch
- Whether the year-end spending package again waives the PAYGO scorecard on its last page, or carries offsets that survive enactment.
- Whether new long-term budget projections lift the 2036 interest estimate now that the 10-year yield has passed 5%.