National Debt Crosses $40 Trillion as Rates Climb

Key Takeaways

• Stocks pulled back last week as long-term interest rates moved to their highest levels of 2026.
• The U.S. National Debt crossed the $40 trillion mark, putting deficits, borrowing and Treasury demand back in the spotlight.
• The 10-Year U.S. Treasury yield rose from 4.70% to 4.736%, even as recent inflation data has shown some moderation.
• WTI crude oil rose from $82.40 to $86.64 per barrel and is now up more than 51% in 2026, continuing the challenge to the inflation outlook.
• This week, investors will focus on NVIDIA earnings, the PCE inflation report and Federal Reserve Chair Kevin Warsh’s Jackson Hole speech.

Market Overview

Last week was relatively quiet on the corporate earnings front, aside from retail reports from Walmart and Target. Instead, national debt and interest rates took center stage. Stocks moved lower as long-term Treasury yields rose, reminding investors that the bond market continues to play an important role in determining stock market valuations and overall investor sentiment.

Market Index Performance: Last Week & Year-to-Date

INDEX	LAST WEEK	YTD
Dow Jones Industrial Average	(0.92%)	+10.77%
S&P 500	(1.44%)	+12.10%
NASDAQ Composite	(2.17%)	+12.50%
Russell 2000	(1.75%)	+21.49%
Foreign Stocks	(0.36%)	+12.73%
Emerging Markets	+0.88%	+22.82%

Rates and Oil Move Higher

The yield on the 10-year U.S. Treasury rose from 4.70% to finish the week at 4.736%. At the same time, WTI crude oil climbed from $82.40 to $86.64 per barrel. Oil has risen more than 51% so far in 2026.

That combination matters. Higher long-term interest rates can put pressure on stock valuations, while higher energy prices work their way through transportation, production and consumer costs. As long as oil remains elevated, bringing inflation — and interest rates — meaningfully lower may be more difficult.

U.S. National Debt Crosses $40 Trillion

In late October 1981, the U.S. National Debt crossed the $1 trillion mark. President Ronald Reagan called the milestone a stark warning for the country. Roughly 45 years later, the National Debt has now crossed $40 trillion.

The number itself is enormous, but the more important issue for investors is what happens next: how quickly the debt continues to grow, how much interest the government must pay, and whether investors remain willing to absorb the tremendous amount of Treasury securities that must be issued.

With market interest rates on the rise, Treasury Secretary Bessent announced a move toward greater use of short-term Treasury bills, with the goal of reducing pressure on longer-term borrowing costs. The initial reaction helped briefly, but long-term yields moved higher again the following day.

Can We Simply “Grow” Our Way Out of the Debt?

Growing our way out of the debt sounds appealing because stronger economic growth produces more income, more business activity and, ultimately, more tax revenue. That additional revenue can make the government’s interest burden easier to manage.

The problem is the size of the challenge. My research suggests that eliminating the annual federal deficit through economic growth alone would require sustained growth of more than 4% per year for over a decade. For perspective, average U.S. GDP growth from 2000 through 2025 was approximately 2.22%.

It is also worth separating two terms that are often used interchangeably. The federal deficit is the amount the government spends above what it collects in a given year. The national debt is the cumulative total of those past deficits and borrowing. Even if the annual deficit improves, the total debt can continue to rise.

Demographics add another layer. The U.S. population grew from roughly 280 million in 2000 to about 330 million in 2025. Looking ahead, most population forecasts call for slower growth, and some project eventual contraction depending on immigration assumptions. Slower population growth can make sustained 4%-plus economic growth harder to achieve.

Why Are Long-Term Interest Rates Rising?

This is the question investors are asking, especially because the last couple of months of inflation data have pointed toward moderation. There is probably no single answer. Instead, several forces appear to be working at the same time:

• Sticky inflation — inflation has moderated, but it has not disappeared.
• Oil prices — higher energy costs can keep pressure on inflation expectations.
• Heavy bond issuance — substantial borrowing by large companies, including AI-related companies, is adding to the supply of bonds competing for investor dollars.
• U.S. fiscal and credibility concerns — investors are paying closer attention to debt, deficits and the government’s long-term borrowing needs.
• Continued economic expansion — a resilient economy can keep rates higher for longer.
• A possible reversion toward more normal long-term interest rates after an unusually low-rate period.

A Reversion to the Mean?

I do not pretend to have the solution for lower interest rates. However, I do believe we may be witnessing something investors have not had to consider for a long time: a return toward more historically normal interest-rate levels, not just in the U.S., but around the world.

Following the 2008-2009 Great Financial Crisis, extraordinary monetary and fiscal support helped stabilize the economy and encouraged growth. Investors became accustomed to exceptionally low borrowing costs. The reality is that those conditions could not continue forever. The difficult question is where the new normal for interest rates ultimately settles.

Treasury Demand Remains an Important Signal

I continue to question Washington’s ability to manage the debt situation over the long term. However, I also believe some of the immediate concerns about U.S. credibility are overstated. Last week, investors absorbed new auctions of both 10-year and 30-year Treasury securities.

As long as Treasury auctions remain well received, the more dire concerns can remain a discussion for further down the road. That does not mean the issue should be ignored. It means investor demand for U.S. debt is one of the most important signals to watch.

What Does Higher Interest Rates Mean for Retirees?

For investors — and especially retirees — higher rates are not entirely negative. Rising yields can create short-term pressure on both stocks and existing bond prices, but they can also create better income opportunities for investors purchasing high-quality bonds at today’s higher yields.

The larger lesson is that this is not an environment where I would want a portfolio dependent on one outcome. We do not need to know exactly where the 10-year Treasury yield will be six months from now. We do need portfolios that are diversified and built to handle different combinations of growth, inflation and interest rates.

The Week Ahead

Looking forward to the final trading week of August, there are three major items for investors to digest:

1. NVIDIA Q2 earnings report
2. The PCE Inflation report (Personal Consumption Expenditures)
3. Federal Reserve Chair Kevin Warsh’s Jackson Hole speech on Friday

The most important may be what Chair Warsh says — or does not say — as investors look for clues about the Federal Reserve’s next moves. With long-term rates already near their highs for the year, any change in the market’s expectations for inflation or Fed policy could quickly affect both stocks and bonds.

Final Thoughts

The $40 trillion debt milestone deserves attention, but it is not a reason for investors to panic. The more important questions are whether deficits begin to improve, whether inflation continues to cool, and whether Treasury buyers remain willing to finance our government at reasonable interest rates.

For now, the bond market is sending a message that investors should not ignore. Interest rates matter again. Oil prices matter. Government borrowing matters. And all three can influence the path of the stock market.

As always, our job is not to predict every headline or every move in interest rates. It is to keep retirement portfolios aligned with long-term income needs, remain diversified, and make thoughtful adjustments as the facts change.

Please feel free to share the Weekly Retirement Report with friends, family and colleagues.

Thank you for reading!

Paul Levin, CFP®, ChFC®, RICP®¹, TPCP®
Managing Principal

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All market data sourced from The Wall Street Journal, Aug 21, 2026.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. 

1. RICP® conferred by The American College ↩︎