There is a common thread running through public finances, monetary policy and markets: America spends heavily, borrows incessantly and pays ever-rising interest costs. At the end of Q2 2025 total federal debt stood at $36.21 trillion (FRED series), whilst debt “held by the public” exceeded $28.98 trillion; as a share of GDP, that is approximately 119% for total debt and 95% for the publicly-held portion alone. These are high, entrenched levels that are difficult to reverse without very clear-cut fiscal policy choices.
The flow of red ink: deficits, revenues and expenditures
In August 2025 the monthly deficit came in at $345 billion (−9% year-on-year), partly owing to the tariff windfall that inflated customs receipts. With one month to go before the end of the fiscal year, the cumulative shortfall stood at ~$1.97 trillion, and consensus estimates for the full year revolve around $1.8–1.9 trillion. Behind the headline figures, CBO/BPC trackers paint a consistent picture: revenues rising (a year-to-date historical record) but expenditure growing at nearly the same pace, with interest, Social Security and Medicare among the key drivers. The TBAC document from July clearly sets out the composition: customs revenues up sharply, education spending down due to one-off effects from 2024, and the Treasury line higher on account of rising interest costs.
How much matures (soon), and why it matters
The issue is not only “how much” but “when”. The average maturity of marketable debt remains short for a G7 issuer: official and parliamentary sources place average maturity at around 72 months as at mid-2025, marginally longer than a year earlier but not enough to “decouple” the average cost from current market rates. Moreover, approximately 31% of publicly-held marketable debt will mature within 12 months: a “maturity wall” that obliges the Treasury to refinance large volumes quarter after quarter.
This short wall is also the result of the (rational) decision to use a large number of Treasury bills to rebuild the cash balance and absorb funding needs: in the TBAC presentation, the base case sets the Bills share at 20.7% (July 2025) across the “prorated” scenarios. More Bills means flexibility and natural demand from money-market funds, but also a faster transmission of market rates through to the average cost of debt.
What the Treasury is doing (and intends to do)
1) Guidance and borrowing estimates. For the July–September 2025 window the Treasury indicated $1.007 trillion of net issuance (privately-held) and a TGA (cash balance) of $850 billion at end-September; for October–December 2025 the estimate is $590 billion net, also targeting a cash balance of $850 billion at end-quarter. These figures anchor market expectations and explain why the supply of US paper should be considered “structural”.
2) Issuance mix and TIPS. In recent Quarterly Refunding communications, dealers expected stable auction sizes on nominals and FRNs, with gradual increases on TIPS (September 10Y reopening +$1 billion; new October 5Y +$1 billion). The objective is to broaden and “lock in” an investor base more sensitive to inflation, without putting excessive pressure on long nominal maturities.
3) Buyback programme. Since May 2024 a regular buyback of off-the-run securities has been in operation to support secondary-market liquidity. The schedule published at end-July details operations on TIPS 1–10 years and on nominals 1 month–30 years, with maximum sizes per auction of between $0.5 billion and $4 billion depending on the bucket. It is an anti-fragmentation “parachute”: it helps when “gaps” form in liquidity on specific CUSIPs.
Demand: who is buying? (and what foreign investors are watching)
The foreign investor column remains important. In July 2025 foreign holdings reached an all-time high ($9.159 trillion), driven by Japan and the United Kingdom, whilst China reduced its holdings to their lowest since 2008. The signal is twofold: on the one hand, the “core demand” for the global safe asset remains intact; on the other, the geographical composition is shifting and may become more volatile over time.
At primary auctions too, the TBAC monitors the foreign component: participation is present, but it is not an inexhaustible tap. Hence the importance of buybacks (for the secondary market) and a predictable supply profile (for the primary market).
The monetary policy framework: QT, RRP and SRF
The Fed has slowed QT twice: from June 2024 the Treasury cap fell to $25 billion per month, and from 1 April 2025 it was further reduced to $5 billion per month (MBS cap unchanged at $35 billion, with excess reinvested in Treasuries). Concurrently, use of the RRP has deflated to near zero from its 2022 peaks, a sign that the liquidity “cushion” has migrated towards Bills and bank reserves. In mid-September, coinciding with tax/settlement deadlines, the Standing Repo Facility saw record utilisation ($18.5 billion): nothing systemic, but a reminder that with the RRP drained, it is the SRF that serves as the safety valve.
The interest bill: the line item moving fastest
In 2025 the government has already spent approximately $1.1 trillion on interest (year-to-date through August). This figure, updated by the Treasury’s official portal, is the best thermometer for understanding how far the “maturity wall” and elevated real rates are cementing higher coupons into the portfolio. It is also the point on which rating agencies converge when they speak of “erosion of fiscal headroom”.
Ratings and fiscal governance
On the reputational front, the picture is clear: Fitch confirmed AA+ (stable outlook) on 22 August 2025; Moody’s downgraded to Aa1 on 16 May 2025 (stable outlook). Translated: the United States remains a very high-quality issuer with unparalleled financing flexibility (dollar/market depth), but deficits and interest costs are a structural constraint weighing on the long-term trajectory.
Where the machine jams: structural difficulties
“Sticky” deficits (even abstracting from cyclical factors), relatively short average maturity, accelerating debt-service costs and a composite foreign demand base. The TBAC also lists the revenue effects of policy measures (tariffs, spending/revenue measures) and flags that uncertainty remains elevated in projections for 2026–2027. The operational message is that net Treasury supply will remain elevated over multiple quarters, with Bills as the buffer and TIPS rising gradually to broaden the investor base.
Market risks: from the term premium to difficult auctions
With such a large and persistent supply, the term premium may remain higher and more volatile along the 5–30 year segment, particularly if long-end auctions show above-average tails or less “sticky” cover ratios. Any shock on duration feeds through to real rates, which in turn compress equity multiples (long-duration sectors such as technology and real estate) and widen credit spreads. Moreover, liquidity is not uniform: on off-the-run securities the liquidity premium tends to widen again during periods of volatility — and buybacks are designed precisely to limit these dislocations, not eliminate them.
What this means in practice for portfolio managers
Bills vs the system “buffer”. With the RRP almost drained and QT slowed, Bills remain well-absorbed by money-market funds (which had an average WAM of approximately 38 days at end-June, against a regulatory limit of 60). Demand is present, but it requires a premium consistent with repo and SRF alternatives. On slightly longer maturities (13–26 weeks), roll-down remains attractive for as long as Fed cuts are uncertain and the curve stays “high” at the short end.
TIPS and real rates. The Treasury is gradually increasing TIPS supply: beneficial for diversifying the investor base and “breaking” some of the real-yield beta. Note, however, that with core inflation proving stubborn in its descent, it is the real rate that drives prices; in drawdowns, TIPS can still suffer via rising real yields (even if the breakeven holds).
Auctions, micro-liquidity and buybacks. During settlement/tax periods (quarter-ends, “heavy” dates) funding conditions tighten: this was visible in mid-September with the record SRF draw. During such phases it pays to monitor bid-to-cover ratios, tails and the buyback calendar: hesitation on the 20–30Y segment often propagates immediately to MBS and IG credit via real rates, and buybacks help to repair spreads on less liquid CUSIPs.
Equities and credit. With >$1 trillion in annual interest costs, any rise in long-end yields translates into de-rating of multiples (especially growth) and wider spreads — not necessarily because of credit deterioration, but because of the absence of real-rate compression. For those holding long duration risk, the tactical management of the curve and the real component becomes crucial.
Conclusion: the term premium is the new metronome of risk
The United States remains the world’s “core” issuer: unrivalled depth, liquidity and a resilient underlying demand base. But the combination of elevated deficits + a wall of near-term maturities + accelerating interest costs makes the supply shock a permanent feature of the new regime. The Treasury is doing a great deal on the supply side (predictable QRAs, liquidity buybacks, more TIPS); the Fed has modulated QT; but the debt trajectory is, ultimately, fiscal. Until there is a credible anchor for the public finances, markets will demand a higher term premium — and it is that premium, today, that sets the pace of global risk.