MediumIV Macro Policy & Sovereign Debt8 October 2026, Thursday
US annual deficit nears 2 trillion dollars as interest costs accelerate
The Congressional Budget Office (CBO) estimated on 8 October that the deficit for fiscal 2026, which ended on 30 September, came to 1.993 trillion dollars. The gap widened by 218 billion dollars in a year to 6.2% of GDP, and net interest costs rose 11%.
According to the American Action Forum, which summarised the CBO's monthly budget review for September, revenue rose 3% in fiscal 2026 to 5.4 trillion dollars while outlays rose 6% to 7.4 trillion dollars. Spending grew by 386 billion dollars, revenue by only 169 billion. The deficit rose from 5.8% of GDP in 2025 to 6.2%. The outturn came in 140 billion dollars above the 1.9 trillion dollar figure in the CBO's latest baseline.
The fastest-growing line is the debt itself. Fox Business reported that net interest payments rose 115 billion dollars, or 11%, in a year; AAF says the item is now the second-largest outlay after Social Security. Customs duty receipts fell 22 billion dollars (11%). AAF attributes this to refunds paid to companies after the Supreme Court ruled some tariffs unlawful.
The Committee for a Responsible Federal Budget (CRFB) put the September deficit at 28 billion dollars and wrote that annual borrowing exceeded the previous year by more than 200 billion dollars. The figure came out on 8 October, when the Treasury's daily yield curve showed the 10-year yield at 5.22% and the 30-year at 5.60%. Rising interest costs point to a loop in which high yields feed straight back into the budget.
Talay assessment
Bottom line
A deficit of 6.2% of GDP and an 11% jump in interest costs show the US cannot cut its debt supply in the near term. Revenue grew by 169 billion dollars while spending grew by 386 billion. The gap is financed through the extra yield investors demand at auctions of 10- and 30-year debt. The likeliest path is heavy supply keeping 10- and 30-year yields elevated.
Likely effects
- US long-term ratesNegative1–6 months
A 1.993 trillion dollar deficit means heavy supply at auctions, which supports the 10-year yield staying in a 5.2–5.3% band.
- US budgetNegative6 months+
Net interest costs rose 115 billion dollars; while yields stay high, this line becomes a self-reinforcing part of spending.
- Türkiye external financingNegative1–6 months
Heavy US debt supply keeps dollar rates high; the cost of dollar borrowing for the Treasury and Turkish companies is priced off this floor.
Possibilities, ranked
- 1Heavy supply, high yields60%
The deficit stays around 6% of GDP in 2027 and yields at 10- and 30-year auctions hold above 5%.
Watch: The CBO's November monthly budget review and yields at November auctions
- 2Revenue recovers25%
Customs refunds end, revenue growth rises above 3% and the deficit ratio falls.
Watch: October customs duty receipts and CBO monthly data
- 3Fiscal worry jumps into prices15%
A credit rating move or weak auctions push the 30-year yield above 5.8%.
Watch: Dealer take-up above 15% at a 30-year auction
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Budget deficit▼ $1.993trn
- Deficit / GDP▼ 6.2%
- Net interest outlays▼ +11%