US Deficit Nears $2 Trillion as Debt and Rates Bite

TL;DR: The federal deficit hit $1.993 trillion in fiscal 2026, up 12% and the largest since 2021, according to CBO figures reported by Yahoo Finance. With the 10-year Treasury near 5.3%, a private deal now has to clear a much higher bar, so ask which Treasury a sponsor measured its projected return against.

How big is the fiscal 2026 deficit, and where did it come from?

It is the largest shortfall since 2021, and spending grew about twice as fast as revenue. The federal government spent about $7.4 trillion, up 6%, while revenues rose 3% to about $5.4 trillion, per Yahoo Finance.

The American Action Forum, summarizing CBO's September 2026 Monthly Budget Review, puts the deficit at an estimated 6.2% of GDP. In nominal dollars, it says, this is the third largest in history, behind the pandemic-era deficits of $3.1 trillion in FY 2020 and $2.8 trillion in FY 2021.

Fiscal 2026 measure	Figure	Source
Deficit	$1.993 trillion, up 12%	Yahoo Finance
Spending	About $7.4 trillion, up 6%	Yahoo Finance
Revenue	About $5.4 trillion, up 3%	Yahoo Finance
Net interest	More than $1.1 trillion, up $115 billion	Yahoo Finance
Deficit as share of GDP	About 6.2%	American Action Forum

I would circle the interest line. It grew 11% in a single year, and the extra $115 billion accounts for more than half of the $218 billion rise in the deficit, according to the American Action Forum.

Why does interest matter more than the headline?

Because interest is the part of the budget nobody votes on. Net interest payments are now the second-largest category of federal spending at 15%, ahead of defense and Medicare, according to the Washington Examiner.

The trend is not flattening. CBO projects net interest costs rising from 3.3% of GDP this year to 4.6% in 2036, per Yahoo Finance, and debt held by the public heads from about 101% of GDP in 2026 to 120% by 2036 under the same baseline.

What are Treasury yields doing?

They are near two-decade highs. The 10-year Treasury yield reached about 5.3% this week, according to Yahoo Finance, citing Reuters. Investopedia says that is up from less than 4% before the Iran war.

I wrote about the debt side of this when the total crossed $40 trillion, in US Debt Hits $40 Trillion. Yields Make It Worse. The deficit number is the same story, one year at a time.

What does this mean if you are deploying capital?

It raises your hurdle rate. A risk-free benchmark near 5.3% means a private deal has to pay you well above that for the illiquidity, the sponsor risk and the fees.

Illiquidity is a cost, not a feature. Say you just sold a business and have $500,000 or more to deploy. A Treasury pays roughly 5.3% and you can sell it any day, so a deal that locks you up for seven years has to beat that by enough to earn the wait.

Projected returns are marketing until someone shows you realized ones. If a sponsor pitches a number that only looks good against a 4% Treasury, ask which Treasury they used. Verify before you trust.

I would also read the bond market with some calm. Investopedia reports that markets are not necessarily sounding an alarm, because growth currently exceeds interest rates. An analyst it quotes still expects deficits to stay around 6% of GDP for the next several years. So the pressure is not an emergency today, but it is not going away either.

Higher rates already show up in credit. If you hold or are considering private credit, read Private Credit Default Rates 2025: Three Indices, Three Very Different Numbers before you trust a single headline figure. For the rate backdrop, see Fed, ECB, BOJ Raise Rates as Energy Shock Hits.

Common mistakes

The first mistake is treating a deficit headline as a trade signal. A number like $1.993 trillion tells you about the government's finances, and it does not tell you when to buy or sell anything.

The second is comparing a private deal to an old yield. Check the date on any benchmark a sponsor uses.

The third is assuming the fix is coming. The Committee for a Responsible Federal Budget says the deficit is the highest ever outside of a war or recession and urges a goal of 3% of the economy, about half of today's level, in its statement. Nothing in the sources I reviewed says that plan is law, so build your return math on today's rates, not on a smaller deficit.

FAQ

How much has the deficit increased?

The fiscal 2026 deficit was $218 billion higher than fiscal 2025, according to the American Action Forum. Spending rose $386 billion while revenue rose $169 billion.

Is the US debt unsustainable?

The sources disagree on urgency. Investopedia says growth currently exceeds interest rates, easing immediate concerns, while CBO's baseline shows interest costs rising steadily through 2036.

What is the relationship between federal debt and the federal deficit?

The deficit is one year's shortfall between spending and revenue. The debt is the running total of those shortfalls. Each deficit adds to the debt, and interest on the debt feeds back into the next deficit.

What to do today

Pull up the last private deal you looked at and find the Treasury yield its projected return was measured against. If that number is stale, ask the sponsor to restate it at today's rate. Then sign up for the free AIN briefing and I will keep tracking these numbers for you.

Educational content only. Not investment, tax, or legal advice. Not an offer or solicitation to buy or sell securities. Past performance does not guarantee future results. Private-market investments are illiquid and involve risk of loss, including total loss of capital. Consult qualified advisers. Angel Investors Network is not a broker-dealer or investment adviser.