Illustration: Chen Xia/GT

The US Treasury Department said in a statement on Monday that it now estimates $1.01 trillion in net borrowing for the third quarter, up sharply from the $554 billion it had penciled in back in April, Bloomberg reported on Tuesday. This adds to the worsening fiscal health of the US and is widely viewed by analysts as a negative signal, as it risks a supply shock for the market.

The implications are far-reaching. It comes as US Treasury auctions are showing signs of demand fatigue, with investors increasingly hesitant to absorb ever-growing supplies of US government debt. This in turn is pushing yields and borrowing costs higher, risking a "spiral" of rising debt and interest expenses amid inflation.

The US Treasury on Wednesday will reveal the Quarterly Refunding Plan, including detailed information on auction sizes for new issues, including three?year, 10?year, and 30?year securities, along with guidance on maturity breakdowns and issuance timing. This data will be pivotal. Not only will it determine how the Treasury plans to spread its funding burden across short- and long-term maturities, but it will also shape how investors price risk in the coming quarters. 

In a report headlined "US fiscal folly could create big, beautiful debt spiral," Reuters said in early July that US Treasury Secretary Scott Bessent said that he would not boost long-term Treasury bond sales given today's high interest rates. Since the pandemic, the average duration of US government debt has declined significantly as the Treasury has favored bills over longer-term instruments in an effort to keep interest expenses under control.

If the Treasury leans more heavily on short-term instruments like Treasury bills, it may ease immediate interest costs, but it would also magnify rollover risk, as debt must be refinanced more frequently, often at higher rates.

The market's response has been telling. US Treasury yields, particularly on longer maturities such as the 10- and 30-year bonds, experienced an uptick on Monday. This rise reflects investor concerns about the increased supply of debt and the potential implications for fiscal sustainability.

At the heart of the issue lies the risk of a self-reinforcing debt spiral: the more debt the US issues, the higher the yields investors will demand to absorb that debt; the higher the yields, the greater the government's interest payments; and the greater the interest burden, the more debt the Treasury must issue to finance it. This doom loop is no longer a theoretical construct. It is beginning to materialize in real time.

While the US government has pointed to increased tariff revenues as a partial offset to the fiscal imbalance, this is a limited and potentially deceptive buffer. Revenue from tariffs may marginally improve headline fiscal figures, but it also imposes hidden costs. By increasing the prices of imported goods and intermediate inputs, tariffs can fuel inflationary pressure, push yields higher, and aggravate the very debt conditions they are meant to ease. In effect, the short-term fiscal gain may come at the price of long-term financial instability.

As of mid?2025, the US had amassed roughly $36.7?trillion in federal debt, equivalent to more than 120 percent of GDP, according to data from the US House Committee on the Budget. Analysts from major institutions - including JPMorgan and Bridgewater Associates - have voiced escalating concern. Ray Dalio, founder of Bridgewater, warned recently that the US is on course for a fiscal "heart attack" within the next three years unless the federal deficit is brought below 3 percent of GDP, Business Insider reported. Currently, the deficit hovers above 6 percent, with interest payments on the national debt projected to surpass $1 trillion annually, according to media reports. 

The US Treasury's announcement this week will not, by itself, determine the outcome. But it will offer a crucial glimpse into how policymakers plan to manage the compounding weight of debt. If investors conclude that the plan relies too heavily on short-term fixes and not enough on sustainable reforms, they may demand even higher risk premiums. That would accelerate the spiral. 

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn