For years, the US national debt has been treated primarily as a macroeconomic issue: a matter for governments, central banks and investors in government bonds. But that distinction is becoming increasingly difficult to maintain.
In August 2026, US federal debt crossed the $40 trillion mark for the first time. The number is difficult to put into perspective, but the more important issue is not the size of the debt itself. It is the combination of large and persistent fiscal deficits, rising interest costs and the need to continuously refinance existing debt.
That matters to businesses because government borrowing does not take place in isolation. It affects the cost of capital, interest rates, investment decisions and, potentially, the value of the US dollar.
Why does government debt affect companies?
The US Treasury is the largest borrower in the financial system, and Treasury yields provide an important reference point for the cost of borrowing across the economy.
A company issuing a ten-year bond, for example, will typically pay a rate based on the equivalent Treasury yield plus a credit spread reflecting its own risk. If the ten-year Treasury yield is 4.5% and the company’s credit spread is 1.5%, its approximate borrowing cost would be 6%.
This means that a company can face higher financing costs even if nothing has changed in its own business.
The problem becomes more significant when Treasury yields remain elevated for structural reasons. The Congressional Budget Office expects the US federal deficit to reach approximately $1.9 trillion in fiscal year 2026 and to grow to $3.1 trillion by 2036. Net interest costs are one of the main drivers of that increase.
For businesses, this can translate into a higher cost of debt, more expensive refinancing and a higher discount rate when valuing future cash flows.
In other words, the US government’s financing problem can eventually become a corporate financing problem.
What is the Treasury doing about it?
The Treasury has been taking measures to improve the functioning of the government bond market, particularly at the long end of the yield curve.
One of the most notable measures is the expansion of Treasury buybacks. In August, the Treasury announced that it would at least double the maximum size of certain longer-term bond buyback operations, from $2 billion to $4 billion per operation. The move came after the 30-year Treasury yield reached its highest level in almost two decades.
A buyback does not mean that the US government is paying down its debt. Instead, the Treasury purchases existing securities from investors. This can improve liquidity and help manage the composition of outstanding debt.
That distinction is important.
Treasury buybacks may help the bond market function more efficiently and potentially reduce pressure at certain points of the yield curve, but they do not solve the underlying fiscal imbalance. The government still needs to finance large deficits and refinance maturing debt.
The fundamental question therefore remains: who will ultimately absorb the growing supply of US government debt, and at what price?
The Federal Reserve adds another layer of complexity
The situation becomes even more interesting when fiscal policy and monetary policy move in different directions.
A heavily indebted government has an obvious interest in keeping borrowing costs manageable. The Federal Reserve, however, has a different objective: maintaining price stability.
That tension has become particularly relevant this week. At Jackson Hole on August 28, Federal Reserve Chair Kevin Warsh warned that further action could be necessary if underlying inflation does not improve sufficiently. Markets subsequently increased their expectations of a September rate increase, while the dollar strengthened and short-term Treasury yields moved higher.
This illustrates an important point for businesses: lower short-term rates cannot simply be assumed because government debt is high.
If inflation remains persistent, monetary policy may have to remain restrictive even when higher rates increase the government’s interest burden.
The result is an environment in which both fiscal policy and monetary policy can have a direct impact on corporate financing conditions.
And what about the dollar?
This is where the story becomes particularly relevant for international businesses.
Normally, higher US interest rates tend to support the dollar because higher yields make dollar-denominated assets more attractive. But the relationship between US debt and the dollar is more complicated when investors become concerned about the long-term fiscal position of the country.
If markets begin to believe that policymakers will prioritise keeping government borrowing costs low, even at the expense of higher inflation or a weaker currency, investors may demand compensation elsewhere.
The adjustment does not necessarily have to occur through significantly higher Treasury yields. It could also occur through inflation, lower real yields or a weaker dollar.
This is one reason why the recent Treasury buyback programme has attracted attention beyond the bond market. Some analysts have argued that efforts to contain long-term yields could ultimately place more pressure on the currency if investors perceive them as a form of financial repression.
This does not mean that the dollar is about to collapse. Nor does it mean that Treasury buybacks are inherently negative for the currency.
The important point is that the relationship between fiscal policy, interest rates and exchange rates is becoming increasingly relevant when assessing business risk.
Why should a European company care?
For a European company with US operations, the exchange rate can have a material effect on reported revenue, margins and cash flow.
Imagine a company generating $10 million of annual revenue in the United States.
At an EUR/USD exchange rate of 1.10, those revenues are worth approximately €9.1 million. If the dollar weakens and EUR/USD moves to 1.25, the same $10 million of sales becomes only €8 million when translated into euros.
Nothing has changed operationally. The company has sold exactly the same amount to exactly the same customers.
Yet its reported revenue in euros has fallen by more than €1 million.
The impact can be positive or negative depending on the company’s currency structure. A European company with both US revenues and US costs may have a natural hedge. A company with dollar revenues but predominantly euro-denominated costs will be much more exposed.
This is why exchange rates should not simply be treated as an external market assumption. They are part of the company’s financial model.
What should businesses do?
The objective is not to predict exactly where US Treasury yields or the dollar will be next year. That is extremely difficult, even for professional investors.
The more useful approach is to understand how the business performs under different scenarios.
What happens to cash flow if borrowing costs increase by 100 or 200 basis points? What happens to EBITDA if the dollar weakens by 10%? How much debt needs to be refinanced over the next three years? Are revenues and costs naturally matched by currency?
These questions can be incorporated directly into a financial model.
The US debt problem therefore matters to companies not because $40 trillion is, by itself, a magic threshold. It matters because the fiscal position can influence the variables that businesses actually care about: interest rates, financing costs, exchange rates and the value of future cash flows.
The most important lesson is therefore not to try to predict the next move in the Treasury market or the US dollar.
It is to understand what happens to the business if they move.
In an increasingly uncertain financial environment, that distinction can make the difference between reacting to market movements and being prepared for them.
