The federal budget deficit expanded significantly in December, marking an alarming shift in the nation's fiscal landscape. The first fiscal quarter deficit reached $710.9 billion, an increase of nearly 40% compared to the same period the previous year. This surge in red ink is propelled by increased outlays and declining receipts, alongside rising interest rates that elevate financing costs. Meanwhile, the national debt has surpassed the staggering $36 trillion mark, intensifying concerns over long-term financial sustainability.
In recent weeks, short-term Treasury yields have maintained stability; however, rates at the far end of the duration curve have experienced a notable surge. The benchmark 10-year note recently yielded close to 4.8%, reflecting an increase of 0.4 percentage points from the previous month. This rise underscores the escalating cost of borrowing for the federal government.
Interest payments have emerged as a significant category of government spending, trailing only behind Social Security, defense, and health care expenditures. In fiscal 2025, interest on the national debt totaled $308.4 billion, a 7% rise from the preceding year. This escalation underscores the growing financial strain posed by the burgeoning national debt.
During the first quarter, federal outlays rose by 11% compared to a year ago, while receipts fell by 2%. These dynamics contributed to the substantial $200 billion increase in the three-month fiscal year total deficit over the comparable period last year. As a result, financing costs for the full year are projected to surpass $1.2 trillion, further exacerbating fiscal challenges.