US debt tops $40 trillion as 30-year Treasury yields reach 5.34% despite buyback plan

Sovereign debt milestone and yield surge

Total United States government debt surpassed $40 trillion this week, roughly doubling its level from 2017 when Donald Trump first took office as president. The annual cost of servicing the federal debt has reached between $1 trillion and $1.2 trillion, with the federal budget deficit running above 6% of gross domestic product. Washington's fiscal demands include administration requests to Congress for $1.5 trillion in defense funding, an additional $87 billion for operations related to Iran, and $600 million for a White House ballroom. The expansion of sovereign borrowing coincided with a broad selloff in sovereign debt across the United States, Europe, and Japan. The yield on the 30-year US Treasury bond reached approximately 5.34%, its highest mark since 2007, as investors evaluated the inflation outlook under Federal Reserve Chair Kevin Warsh.

Treasury buyback intervention

In response to the long-dated yield surge, Treasury Secretary Scott Bessent announced on Wednesday that the government would double the size of its bond buybacks to at least $4 billion per operation for 10-year to 30-year Treasuries. The announcement prompted a 10 basis point drop in 30-year yields, but yields rebounded on Thursday to trade near 5.25%. Bessent told CNBC that operations could expand beyond $4 billion and floated the idea of a fiscal consolidation plan led by President Trump. Analysts noted that $4 billion per operation amounts to approximately $14 billion in additional bond repurchases per quarter in the $32 trillion Treasury market. Foreign exchange analysts raised concerns that restraining yields through repurchases could shift market adjustments toward a weaker dollar.

There has to be a price to pay. Either in the form of higher yields, or they're going to get a concession from the U.S. dollar.

Corporate AI bond supply

Corporate debt issuance has added supply to fixed-income markets, driven by artificial intelligence infrastructure spending. Amazon completed a $25 billion long-dated bond offering priced at approximately 120 basis points over Treasuries, about double the spread seen in the previous year. Technology corporate bond spreads widened to 89 basis points, which is nine basis points wider than the broader investment-grade market. Fund managers noted that high borrowing volumes are forcing investors to demand larger concessions to absorb the debt.

It's not really a credit issue with higher-quality technology companies, such as Amazon and Google. But the more they have to issue bonds, the more investors are demanding a premium to absorb that debt.

Energy markets and geopolitical tensions

Inflation concerns were reinforced by restricted maritime traffic through the Strait of Hormuz and rising fuel costs. Brent crude touched a one-month high of $94.71 per barrel before settling near $93.80, representing a 25% increase from pre-conflict levels. European diesel prices have gained over 70% while United States gasoline is up roughly 60%. European diesel refining margins surpassed $75 per barrel, and United States crack spreads reached $100 per barrel. Bessent scheduled a media conference for Monday to outline sanctions against Iran.