US debt tops $40 trillion, bond market steps in as Washington stalls

The United States crossed the $40 trillion debt threshold, a milestone that prompted J.P. Morgan’s David Kelly and Apollo’s Torsten Slok to conclude that Washington will not act, leaving the bond market to enforce fiscal limits. Their assessment was reinforced by Stanley Druckenmiller’s one outlet's column, which condemned the Treasury’s decision to double long-dated bond buybacks after the 30-year yield hit a 19-year high, calling it price management rather than liquidity provision.

Kelly broke down the debt rise into four drivers: successive tax cuts, costly wars, expanding Social Security, Medicare and Medicaid, and emergency spending for the 2008 crash and the pandemic. Slok highlighted that debt has grown faster than GDP since 2006 and that projected deficits could push debt-to-GDP ratios toward 175% under current policy. Market data show Treasury yields climbing mainly due to fears about the sheer amount of new issuance, compounded by AI hyperscaler bonds competing for investors.

The article notes that the traditional foreign-central-bank buyer base has faded, with hedge funds now holding the bulk of long-term Treasuries, creating a paradox where the industry that once bet against governments now finances them. The analysis suggests that unless policymakers heed these market signals, borrowing costs may remain elevated for an extended period.