To The Moon

Current Fiscal Landscape.

As of 20 Apr 2026, Singapore evening, US national debt stands at $39.14 trillion.

This is about 120 –125% of US’s current GDP and it is fast approaching the psychological & economic threshold of $40 trillion. (see below)

In contrast, on 20 Jan 2025, when Trump assumed the Oval Office for his 2nd term, US national debt stood at approx. $36.22 trillion.

In a short span of 15 months, the current administration has managed to successfully pile on an additional $2.92 trillion, that is about a +8% increase in absolute debt OR an average increase of nearly $200 billion /month - instead of reducing national debt as promised during campaign trial.

Attempts to cut Federal spending included:

• Trump’s brainchild of the Department of Government Efficiency (DOGE), through mass layoffs, contract terminations, and the elimination of redundant agency regulations, aimed at cutting $1 trillion in spending over a decade.

• Aggressive deportation strategies as a fiscal measure to reduce long-term public service costs and rental assistance outlays but requiring substantial upfront enforcement spending.

• Government-wide hiring freeze and significant funding rescissions for the IRS, intended to return agency staffing to 1960s levels, reducing audit capacity and tax compliance.

Despite these aggressive maneuvers, all efforts amounted to “nothing” by the time the fiscal dusts settled, i.e., net fiscal position deteriorated rather than improved.

Official Treasury data published as of early 2026 showed that:

• The “supposed” $1.0 trillion in savings by DOGE did not happen.

• Instead, federal spending actually increased by $84 billion YoY, due mainly to rising entitlement obligations and emergency defense appropriations.

Ultimately, high operational costs of mass removals and the loss of tax enforcement revenue resulted in a net fiscal loss rather than the projected savings.

IMF Debt Warning.

It is precisely the issue of a soaring US debt that the International Monetary Fund (IMF) warns about.

The IMF strongly suggest that it may cause US Treasury bonds to lose their risk advantage over other securities, making it more expensive to borrow money, as a result, a structural shift, not cyclical

It also means the US Treasury Department must issue more and more fresh debt, testing the appetites of bond investors, that have already shown signs of waning demand e.g., weaker auction bid-to-cover ratios in recent quarters.

The result has been higher yields, and between US-Iran war and defense budget already topping $900 billion annually, the debt situation is expected to get even worse.

The IMF Report:

• Increase in the US Treasury security supply is compressing the safety premium that US Treasuries have traditionally commanded, creating an erosion that pushes up borrowing costs globally.

• US treasuries have long enjoyed the status as the world’s top safe haven asset, backed by reserve currency dominance and deep liquidity. Now, this ‘status’ is being tested.

• With an annual budget deficit of $2 trillion, that is roughly 6% - 7% of GDP, US continues to pile onto its $39 trillion national debt.

• Total interest costs alone have reached $1 trillion a year, making it one of the largest single federal expenditures, that rivals social security and defense.

Shifting Market Dynamics & Sovereign Competition

IMF, the emergency lender pointed out that the spread between AAA-rated corporate bond yields and US Treasury yields has compressed, a rare occurrence historically.

In fact, US debt is competing against a record number of corporate debts, especially those from AI hyperscalers (eg. $Microsoft(MSFT)$, $Amazon.com(AMZN)$, $Alphabet(GOOG)$ , $Meta Platforms, Inc.(META)$ , $Oracle(ORCL)$).

In their quest to build out their AI data centres, these mega-tech giants are projected to spend more than $300 billion annually in capital expenditure (Capex).

This "crowding out" in the credit markets is pushing Treasury yields higher, as a result.

The IMF said Treasuries' global convenience yield, the extra bonus investors get for holding them due to their top safety and easy-to-trade nature, recently turned negative - a significant regime shift.

Negative Convenience Yield.

This means people no longer see US Treasuries as uniquely valuable compared to other safe global bonds, loss of “scarcity premium”.

Simply, Treasuries now pay higher interest than similar safe bonds from other major countries (eg. those from the G10 group), even after adjusting for currency risks, implying weaker relative demand.

Erosion of US debt’s risk advantage can also be seen in other areas of the bond market.

While investors have balked at Treasuries recently, demand has surged for debt issued by sovereign, supranational and agencies (SSA) like the World Bank and the European Investment Bank (EIB), viewed as high-quality alternatives.

Narrowing Window for Fiscal Stability

According to the Financial Times, in the past week, a $4 billion auction for 3-year EIB bonds drew more than $33 billion of orders, more than 8x oversubscription, resulting in a yield of 3.82%, +0.04% above comparable Treasuries.

In the secondary market, SSA dollar bond yield spreads vs Treasuries have also fallen to a few hundredths of a percentage point recently, indicating near parity in perceived safety.

All the while US debt supply has exploded, while demand has also shifted, where global central banks are becoming less prominent buyers (eg. China), declining reserve accumulation trends, while hedge funds have taken on bigger roles.

On top of that, the Treasury Department has relied increasingly on short-term debt (eg. T-Bills) that needs to be rolled over more frequently with T-Bills now forming a larger share of issuance, exposing US government to sudden changes in market conditions. (see below)

Extract of US Treasury Securities - Auction Schedule from Mid April to May 2026

In a Friday note to clients, Apollo, Chief Economist Torsten Slok said:

• Hedge funds own a record-high 8% of US Treasuries with combined repo and prime brokerage borrowing exceeding $6 trillion.

• Any forced unwind of these leveraged positions could send shockwaves through global fixed income markets, similar to past liquidity stress events like March 2020.

In IMF’s viewpoint:

• US faces an “inescapable” arithmetic problem and it has urged Washington to stabilize its debt trajectory by taking action on both its revenue as well as expenditures, including entitlement programs.

• US’s window for orderly fiscal adjustment is narrowing as the debt-to-GDP ratio climbs.

• Advanced economies with large debt loads need concrete, well-sequenced consolidation measures, not aspirational medium-term targets.

• According to the Congressional Budget Office (CBO), US debt is already 100% of GDP and is projected to top 150% by 2055 as Social security and Medicare outlays jump, driven by aging demographics and rising healthcare costs.

Ripple Effect on US Economy & Stock Market ?

As investors of US stocks, it is necessary, to keep abreast of these shifts, especially fiscal sustainability trends.

US Treasury bonds - Buyers.

Top 3 foreign holders of US Treasuries:

• Japan has about $1.239 trillion as of February 2026, from $1.225 trillion in January 2026

• United Kingdom holds about $888.5 billion in November 2025

• China holds about $693.3 billion as of February 2026, down from US$694.4 billion in January 2026, according to US Treasury Department data released on Wed, 15 Apr 2026.

US Treasury bonds - Sellers.

Top 3 sellers of US Treasuries:

• China - since July 2025, it has offloaded over $200 billion in assets as part of strategic diversification into gold and other currencies.

• Brazil has significantly reduced holdings (-27% YoY) to defend its local currency and rebalance reserves.

• India.

  Cut holdings by roughly -20% in H2 2025, mirroring a broader trend among BRICS nations to reduce US dollar dependency.

Tracking US national debt (closely) is important for individual investor (like me) because it (a) drives higher Treasury yields, (b) raises corporate borrowing costs and (c) squeezes profits.

Fiscal Strain.

With the US national debt at an all-time high, the cost of servicing this debt has more than doubled since 2020, from around $500 billion to $1.0 trillion.

The US government now pays approximately $1.0 trillion in interest annually, that’s 15%–20% of total federal revenue

On 21 Jan 2025, the 10-year Treasury yield ("risk-free" benchmark) was at 4.634%, and slightly more than a year later, it remains above the 4.20% level. (see above)

These "higher-for-longer" yields reflect ongoing fiscal concerns and limit the Fed's ability to cut interest rates, as inflationary pressure of massive deficit spending, keeps the central bank's hands tied.

US Economy - “Crowding out" effect.

Rising debt supply has kept Treasury yields high, creating a situation that threatens to "crowd out" economic growth.

If interest rates remain elevated to attract bond buyers, the government effectively competes with the private sector for capital, especially during periods of heavy issuance.

This may eventually drain private investment, leading to lower corporate earnings and a broader slowdown in the economy, historically associated with tighter financial conditions.

Impact on Stock Market Valuations

These high yields directly hurt the stock market by pushing up company borrowing costs and making bonds a more attractive alternative to equities.

To remain competitive, stocks must offer higher returns or face valuation compression, meaning lower P/E ratios across the board.

Furthermore, debt spikes erode investor sentiment and heighten market swings, often sparking selloffs during periods of fiscal brinkmanship, such as debt ceiling disputes, as funds shift toward the safety of bonds or cash equivalents.

While US economy shows resilience, it does not require a genius to know that the $40 trillion debt cannot be ignored.

Unless the US government exercise good housekeeping, the real risk is not an immediate collapse.

Rather, it will be a slow tightening grip, where higher debt (1) steadily lifts yields, (2) crowds out growth, and (3) quietly compresses stock market returns over time. Agree ?

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