US government debt hit a milestone $40 trillion in August, triggering a potentially uncomfortable debate for President Donald Trump and Republicans contesting tight midterm elections next month: whether the world's No. 1 economy is also becoming a riskier credit in financial markets. So far, the answer seems to be no.

World bond markets are driving borrowing costs higher for everyone, and analysts say that the "term premium" – or the return required on a bond tied to the borrower's perceived credit quality – does not seem to show worrisome increases for the United States.

Yet risks remain, analysts say, in part because the Trump administration has not taken concrete steps to reduce US deficits or curb rising borrowing costs, beyond its promise that the US can grow its way out of a difficult fiscal predicament. The administration also says its sweeping trade tariff policy will help ease fiscal pain.

These dynamics are now driving up interest rates for home mortgages and other consumer loans, ahead of the November 3 congressional elections in which polls show Republicans could lose control of the Senate and House of Representatives. Rising costs are the main issue for voters, polls show.

On Friday, the Treasury reported a roughly $2 trillion budget deficit for the fiscal year ended September 30, 12% larger than the previous year's and the biggest since the federal spending surge during the COVID-19 pandemic. Deficits are usually meant to track the business cycle.

But in the US, they never fully retreated from the pandemic era because high embedded entitlement payments, tax cuts, increased military spending and, more recently, rising interest costs pressured the government to borrow more.

The fiscal 2026 deficit was the third largest ever, with debt service costs a record $1.36 trillion.

Further, US government spending exceeded receipts by an amount equal to about 6.2% of the total economy, even as analysts say a sustainable annual deficit, given typical economic growth, is around 3%.

Some of the $40 trillion IOU includes obligations to government entities like the Social Security Trust Fund, while the total owed to Treasury bond holders is around $32 trillion – rivaling the size of the economy.

In another potential risk signal, the debt-to-GDP ratio is now around 100%, a benchmark last seen during the financing of World War II.

Economists are largely split on whether that is a problem and whether there is a tipping point. They say a US debt default, which would shock the global financial system, is highly unlikely.

Yet even some Federal Reserve officials warn that at some point there could be a reckoning, and its pain will depend on the rate of economic growth and how fiscal policymakers react.

The Trump administration says a promised economic expansion will head off trouble for the rising debt.

But the timing is difficult: rising global bond yields force the US to issue more debt each year, and leave it competing for investment dollars with other stable countries or corporations funding AI projects.

Analysts say the cycle of higher debt, rates and borrowing may be hard to break through growth alone.

“Every candidate on the 2026 campaign trail should be asked how they would work to put the budget on a sustainable track," said Carolyn Bourdeaux, executive director of policy advocacy group Concord Action.

"Without real action on these vital fiscal issues, America is careening toward an ominous fiscal crisis that would leave all of us much worse off sooner than anyone in Washington apparently wants to believe.”

A signature Trump policy was to tax imports, exposing exporters, importers and consumers to potentially higher costs. The approach initially worked to funnel tens of billions of additional dollars to the government.

But when the Supreme Court earlier this year struck down many of his tariffs, the government was forced to pay $145 billion in refunds, negating much of that windfall – which itself was a small fraction of the overall gap between spending and tax receipts. Fed officials have blamed recent inflation in part on Trump's import tariffs.

The elections may determine the future of US tariffs, especially if Democrats take control of a congressional chamber and assert tax-levying and oversight power.

US borrowing costs are scooting higher, defying containment efforts by Treasury Secretary Scott Bessent. Though he had flagged yields on the 10-year Treasury note as an index of his own success, they have ground higher, perhaps ushering in what some analysts predict is an era of stubbornly higher interest rates.

For American voters not attuned to global bond markets, it still matters. The rate on 30-year mortgages is rising in line with the overall cost of credit, and hit a recent high of 7.40%, according to Freddie Mac. That compares to the ultra-low 3% rates common in the 2010s.