40 Trillion and Counting: Moody’s Chief Sees the Treasury Spiral Before It Breaks

(SeaPRwire) –

By: Raymond Vance

The market just blinked, and Moody’s got the memo. The U.S. national debt now stands at more than $40 trillion, yet no one in Washington is panicking. Treasury Secretary Scott Bessent keeps insisting higher yields aren’t alarming unless they are idiosyncratic to the United States rather than part of a global trend. That reasoning used to hold weight. It does not anymore. Mark Zandi, Moody’s chief economist, wrote late Sunday night that he is already seeing the first signs of discomfort in the Treasury market. Global investors, he argued, appear to be demanding a higher rate to compensate for mounting risk. The 10-year Treasury yield is up roughly a percentage point this year. That is among the largest increases of any major economy.

Zandi’s note landed alongside a Treasury confirmation of a $2 trillion deficit for the fiscal year ending in October. More than half of that $2 trillion went straight to interest payments. That is not a line item; it is a fire consuming the budget before Congress debates anything else. The debt-to-GDP ratio stands at 126%. Policy optimists wave off the number by pointing to the size of the U.S. economy. The largest economy on the planet, they say, why worry? That argument assumes the market keeps pricing in growth. Zandi says it is starting not to. He warned that a vicious cycle threatens to take hold. Higher rates add to interest payments and the debt load. The heavier debt load pushes rates up even more. He also emphasized that the U.S. situation is far and away the most important one, because Treasuries are the global benchmark.

The IMF published a note last week confirming the broader picture. Long-term sovereign yields have increased sharply across major advanced economies. Between February and September of 2026, the G7 average 10-year government bond yield rose by over one percentage point. That is the highest level in nearly two decades. Bessent’s point about a global trend has a surface-level validity. But Zandi’s counterpoint is sharper. The magnitude of the U.S. economy means its fiscal reckoning ripples through every sovereign bond, every mortgage rate, and every corporate borrowing facility on Earth. Even if other countries share the problem, no other country’s balance sheet moves global capital at this scale. Ray Dalio of Bridgewater Associates sees an economic heart attack coming. Kent Smetters at Wharton believes America will simply inflate its way out of the crisis. Neither scenario is comfortable.

Zandi does not use the language of panic. He uses the language of a spiral beginning to form. The mechanism is mechanical. Interest payments grow. Borrowing costs rise. The debt-to-GDP ratio climbs. Investors demand more compensation for risk. That compensation is the yield going up. The debt grows faster. The yield goes up again. A fiscal crisis in the United States would not be a distant hypothetical. It would be the repricing of the world’s reference asset. The next downgrade from any of the three major rating agencies will not arrive as a shock. It will arrive as a confirmation of what the Treasury market already priced. Watch the 10-year yield curve for the next 90 days. If it steepens sharply above where it sits now, the market has decided. The question will not be whether the U.S. fiscal path is unsustainable. It will be how fast the repricing moves.

Author bio: Raymond Vance, a senior macro-economist and consultant to central banking policy research working groups.