The Quarterly Ledger: A Review of the Nation’s Balance Sheet: Q3 FY 2026

Policymakers in Congress are currently attempting to push through a $95 billion reconciliation framework (dubbed reconciliation 3.0). To the surprise of few, the spending package contains no “pay-fors” or spending cuts for the $95 billion in new spending.

As total debt held by the public approached $32 trillion in the third quarter of fiscal year 2026, it would be valuable for policymakers to take stock of the nation’s balance sheet. Nine months into FY 2026, U.S. debt held by the public is $31.68 trillion. This amount is an increase of $2.68 trillion from the same time last year, or an increase of roughly $16,600 per federal taxpayer.

After stabilizing briefly in April, public debt accelerated upwards in May and June, approaching $32 trillion, as figure 1 illustrates. As a share of GDP, the public debt ratio is 99 percent. This is close to record levels (the highest level was in 1946 at 106%), while the Congressional Budget Office forecasts our debt trajectory will reach a record high within the next three years.

At this level of public debt, the U.S. economy forgoes about 0.8 percentage points in potential economic growth, based on a synthesis of nearly 200 estimates in the empirical literature. In other words, real economic growth in 2026 would be about 3 percent rather than the forecasted 2.2 percent if our debt ratio were stable at 75% of GDP, as it was in 2019.

Nine months into the fiscal year, the federal government has spent a total of $5.52 trillion, while bringing in a total of $4.15 trillion in receipts, according to the latest Monthly Treasury Statement. Federal revenues are slightly higher than last year, but spending is also higher than in prior years. As a result, the budget deficit for the first nine months of FY 2026 is already $1.37 trillion. As figure 2 shows, this nine-month budget deficit is slightly larger than prior year’s.

Interest Rates and Interest Payments

One major federal outlay that has played a key role in driving spending levels higher in recent years is the growing burden of federal interest payments on the debt. Over the past 12 months, the average interest rate on U.S. government debt as a share of GDP has hovered around 3.3 percent. This rate is significantly higher than the 2000-2021 average of 1.76 percent, as shown in figure 3. As both the public debt ratio and the interest rate on U.S. Treasurys move higher, interest expenses crowd out a larger share of the federal budget, leaving less revenue to be distributed to other policy goals and programs. The larger budget deficit also crowds out economic growth by reducing private savings and investment.

As Treasury yields remain stubbornly high, interest payments continue their upward trajectory, resulting in a larger share of federal revenues being spent on servicing the debt. Figure 4 shows that, year to date, almost 20 cents of every dollar of tax revenues collected was spent on servicing the debt. This proportion is similar to the prior two years, but notably larger than in 2023 and more than double the share of revenues spent on interest in 2022.

Maturity Structure of Public Debt

The maturity structure of public debt is a critical indicator of fiscal risk, revealing how soon the government must refinance its obligations and how vulnerable it is to changes in interest rates. The U.S. debt maturity structure is relatively short-term, meaning most of the debt is regularly rolled over into short-to-medium-term Treasuries. Figure 5 shows the average maturity of public debt over time since 2000. Historically, the average maturity of U.S. public debt is 64 months or roughly 5 years, fluctuating between a low of 49 months and a high of 75 months. Looking at the most recent quarterly data (Apr-Jun), the average debt maturity is 71 months, or just under 6 years—similar to the last quarter.

Looking at the distribution of public debt by different maturities, we can see that 33 percent of all public debt matures within 1 year or less, while another 35 percent matures within 1 to 5 years. Figure 6 reveals that the debt maturity distribution has changed very little over time, with about 70 percent of debt consistently maturing within 5 years. The share of public debt with a maturity of more than 10 years has increased slightly, while the share with maturity between 5 and 10 years has decreased slightly over time.

Using the latest data from the Monthly Statement of the Public Debt (MSPD), we can see that in the coming quarter (Jul-Sep), the Treasury will roll over a little more than $5.65 trillion in maturing Treasurys, or roughly 18 percent of all public debt. The fact that almost one-fifth of the entire debt stock gets rolled over in a single quarter demonstrates just how short-term the maturity structure of U.S. public debt is. Rapid and persistent increases in interest rates can have serious adverse consequences for federal budget sustainability—a risk that becomes more significant as the debt stock continues to grow.

Who Holds Public Debt?

Understanding who holds the U.S. public debt reveals not only the financial structure behind government borrowing, but also the potential economic and geopolitical vulnerabilities tied to our fiscal position. Up through the Great Financial Crisis, the dominant purchaser of U.S. Treasurys was foreign investors (foreign governments, central banks and foreign financial institutions). Between 2008 and 2015 about half of U.S. public debt was held by these foreign investors. For the past decade, however, the share of public debt held by foreign investors has declined, with foreign investors now holding less than 30% of public debt. Figure 7 shows the change in who holds U.S. public debt over the past 26 years, focusing on the four largest purchasers.

Notably, mutual funds now hold about 17 percent of treasuries—up from 10 percent 3 years ago. Also of note, the Federal Reserve restarted quantitative easing (QE) in December—buying $40 billion of U.S. short-term Treasury debt every month. Since resuming QE, the Federal Reserve has absorbed about a third of the value of all newly issued debt during that period.

As of the latest Treasury Bulletin data (June report), foreign investors held 30 percent of U.S. public debt. Other major holders include the Federal Reserve with 14 percent, mutual funds with 17 percent, and money markets with 11 percent. While state and local governments and depository institutions hold about 5 percent and 7 percent respectively. The pie chart (figure 8) breaks down the holdings of U.S. public debt.

The U.S. Balance Sheet Is Structurally Vulnerable

As policymakers push through another spending bill with no pay-fors, the federal government now finds itself navigating a precarious fiscal landscape—marked by historically high debt levels, growing interest costs and a heavy reliance on short-term refinancing. Modest growth in revenues remain insufficient to close the widening gap between spending and receipts. With nearly one-fifth of public debt maturing in the next quarter alone, and interest payments claiming a growing share of the federal budget, the structural vulnerabilities of the U.S. balance sheet are becoming more difficult to ignore.

To monitor the fiscal outlook in real time, I’ll be updating “The Quarterly Ledger” series every quarter. Each edition will track key changes in the federal balance sheet, including public debt levels, budget deficits, interest payments and different measures of sustainability. Follow along for ongoing analysis and data-driven insights into the nation’s evolving fiscal position. You can read last quarter’s update here.