The federal government's debt load crossed $37.6 trillion in September 2025, and the cost of servicing that borrowing is mounting fast. Annual interest payments on the debt reached $1.2 trillion in fiscal year 2025, according to Treasury data — a figure that now exceeds what the government spends on either Medicare or national defense.
The Cost of Borrowing
The Congressional Budget Office projects annual deficits will stay above $2 trillion for the next decade, meaning the debt will keep growing. To finance that shortfall, the Treasury issued $30.2 trillion in marketable securities during fiscal year 2025 — an amount equal to 36% of the entire U.S. economy. That's a lot of paper hitting the market, and it comes with a price tag.
Interest payments have been climbing for years, but the jump to $1.2 trillion marks a new milestone. Ten years ago, the government spent less than half that amount on debt service. The surge reflects both higher debt levels and the fact that much of the outstanding stock was refinanced at elevated rates after the Fed began tightening in 2022.
A Bond Market Puzzle
One odd thing: the Federal Reserve cut its benchmark rate by a full percentage point in late 2024, but the 10-year Treasury yield barely budged. By September 2025, the yield on the benchmark note sat almost exactly where it was a year earlier, despite those 100 basis points of cuts. Traders typically expect longer-term yields to fall when the Fed eases, but that hasn't happened this time.
The disconnect is spilling into mortgages. Despite the Fed's easing cycle in 2024-2025, 30-year fixed mortgage rates have stayed stuck between 6.8% and 7.1%. The spread between those mortgage rates and the 10-year Treasury yield widened to three full percentage points in 2023-2024 — a sign that lenders and investors are demanding more compensation for risk, not less.
Refinancing a $9 Trillion Wall
Part of the pressure comes from the sheer volume of debt that needs rolling over. In fiscal year 2025, $9.1 trillion in Treasury securities matured and had to be refinanced. That's roughly a quarter of the entire marketable debt stock turning over in a single year. Every new issuance locks in today's yields, which are still historically high despite the Fed's rate cuts.
The combination of persistent deficits, heavy refinancing needs, and a bond market that refuses to rally on rate cuts raises a hard question: are long-term interest rates being driven by something other than Fed policy? Many market participants point to the rising supply of Treasuries as a factor. When the government borrows that much, someone has to buy the paper, and the price — meaning the yield — adjusts accordingly.
What Comes Next
The Treasury will release its next quarterly refunding schedule in late October, detailing how much debt it plans to auction in the months ahead. If the pace of issuance stays heavy, the pressure on yields could continue, keeping borrowing costs high for both the government and private borrowers. The CBO's deficit projections suggest the math doesn't get easier from here.
