US National Debt Surpasses $40 Trillion Amidst Widening Budget Deficit

The US national debt has surpassed $40 trillion for the first time, reaching a milestone that could limit essential public spending. This comes amidst a widening budget deficit and growing fiscal risks for citizens.

The yield on US 30-year government bonds reached its highest level since May 2007 at 5.31%, but declined to 5.19% by market close due to reduced expectations of further interest rate hikes by the Federal Reserve. Market-implied probabilities of a rate hike this year are now concentrated at the December meeting, standing at a 47% likelihood.

High national debt alongside elevated benchmark rates dampens investor confidence and creates a policy dilemma for the Federal Reserve: while it continues to combat persistent inflation, maintaining higher interest rates risks exacerbating the sovereign debt burden.