The rising U.S. national debt has not yet caused significant disruption to economic growth or capital markets, according to investment strategists at U.S. Bank Asset Management. Despite the growing debt, investors have focused on economic performance and interest rate trends.
“Markets are aware of the issue, but are not pricing in disruptions,” said Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “Bond markets are where investor concern over rising debt will be most visible.” Haworth noted that yields on the 10-year U.S. Treasury note remain near 4.1%, indicating limited market concern about ongoing debt increases.
The cost of servicing the national debt has become more prominent as interest rates have risen since 2022. The average interest rate on federal government-issued, interest-bearing debt reached 3.35% as of January 31, 2026—more than double the average rate paid in 2020. This increase means a larger portion of federal spending now goes toward paying interest.
“Federal Reserve (Fed) rate cuts pulled short-term bond yields lower,” said Bill Merz, head of capital markets research for U.S. Bank Asset Management Group. “Longer-term bond yields remained rangebound in recent months due to lower future inflation and policy rate expectations offsetting stronger economic growth expectations.” Merz suggested that investors should monitor current policies and expectations for growth and inflation to understand differences between short- and long-term rates.
The U.S. Treasury plans substantial borrowing in early 2026, expecting to raise $574 billion through new privately held, net marketable Treasury securities in the first quarter and another $109 billion in the second quarter. In late 2025, borrowing totaled $550 billion for the final three months of the year.
Large borrowing amounts do not automatically cause stress in financial markets but can prompt questions about who will purchase new government bonds. After reducing its holdings from a peak of $8.5 trillion in 2022 to around $6.2 trillion by December 2025, the Federal Reserve stopped shrinking its balance sheet and began buying short-term Treasury bills again to maintain banking system reserves and manage short-term rates.
Foreign demand for Treasuries remained steady throughout 2025 compared with previous years, even as trade tensions rose and China’s participation declined somewhat. Individual investors and mutual funds have increased their purchases of Treasuries recently, helping diversify the buyer base and potentially easing absorption of large new issuances.
A major question for investors is whether heavy issuance could impact both bond and stock markets going forward. “Higher bond yields, if they occur, could lead investors to put more money into fixed income instruments rather than into stocks,” said Haworth. He explained that this shift could pressure stock valuations if bonds become more attractive relative to equities—even during periods of economic growth.
“Yet for now, government debt is not a problem until the bond market deems it a problem,” Haworth added, emphasizing that while high levels of debt can persist without immediate consequence, markets may react quickly if inflation rises or investor risk preferences change.
Merz stated: “The government’s debt is manageable today… But the ability to sustain rising debt levels over time concerns investors.” He recommended early action on long-term solutions to avoid more painful adjustments later.
Haworth also pointed out challenges related to Social Security and Medicare: “We have an aging population and fewer workers in succeeding generations to pay the costs of these programs… These are manageable budget matters, but Congress hasn’t yet formulated solutions to them.”
Interest rates remain a key factor influencing investor decisions between stocks and bonds as higher rates make fixed income investments more competitive with equities. “Once interest rates stabilized in mid-2023, stock valuations moved higher, reflecting both higher earnings and expectations that rates will trend lower,” Haworth said.
Investment professionals at U.S. Bank suggest maintaining diversified portfolios with overweight positions in equities if economic growth continues while keeping some allocation to fixed income assets such as Treasuries for stability.
Investors are encouraged to consult financial professionals about aligning their strategies with personal goals amid ongoing uncertainty regarding national debt trends and market responses.
Currently, foreign entities—including governments—hold about one-quarter of outstanding U.S. Treasury securities based on Department of Treasury data from 2025; individuals and mutual funds have taken on greater roles as buyers alongside continued Federal Reserve involvement despite reduced holdings since earlier peaks.
Government deficits arise when annual expenses exceed revenues; these recurring gaps accumulate into total national debt over time rather than resulting from any single decision or event. As of February 2026, total U.S. national debt stood at $38.6 trillion—a reflection of persistent deficits combined with increased interest costs during this period.
