Explainer: The Role of the Treasury and the Fed in Managing the National Debt

The US Department of the Treasury (Treasury) and the Federal Reserve (Fed) are crucial institutions that support the functioning of the Federal government, financial markets, and the broader economy. They also play a fundamental role in managing the national debt based on the spending and laws Congress enacts. The Treasury implements its debt management policy by conducting auctions to sell debt and extraordinary measures to avoid reaching the debt ceiling. The Fed complements this role by acting as the Treasury’s fiscal agent. Understanding these institutions and how they interact with the national debt reveals important dynamics at play for our nation’s fiscal outlook.

This Explainer provides a brief overview of the looming debt crisis and the functions of the Treasury and the Fed; the role of the Treasury and the Fed in managing the national debt; recent debt management trends, including interest rates, the composition of the debt, who holds the debt, and differences across recent Administrations; and policy considerations for more efficient and effective debt management.

Introduction

The US has over $40 trillion of national debt, representing 123% of GDP.¹ The country now spends more annually on interest on that debt than on defense, with the costs of servicing the debt also fast approaching annual spending on Medicare. The primary Trust Funds for Social Security and Medicare are also projected to become insolvent within the next seven years, requiring automatic benefit cuts, payroll tax increases, sharp premium increases in the case of Medicare, or even more deficit spending to backfill these programs.² These pressures will intensify as the population ages, health care costs rise, and US economic growth rates are expected to be low throughout the 2020s and 2030s.³

For American businesses, the looming debt crisis carries tangible, real-world consequences. High levels of debt require the government to spend more on interest payments, leaving fewer resources available for infrastructure, education, national defense, and social programs. If investors begin to view US debt as riskier, interest rates could rise further, increasing borrowing costs for expansion, hiring, and investment.

All Americans will feel the effects of the debt crisis.⁴ Current retirees and those approaching retirement age (especially those with limited pensions and retirement savings) will be at risk of losing crucial income, health, and long-term care support. Younger generations will also have to bear the burden of reducing the national debt with less fiscal flexibility to address long-term structural challenges. In short, the high national debt prevents us from investing fully in America’s future.

Two government institutions have a key role to play in managing the national debt: the Treasury and the Fed. The Treasury is responsible for “promoting economic prosperity and ensuring the financial security of the United States.”⁵ It has a three-part mission: promote the conditions for economic growth and stability; strengthen national security by combating threats with economic sanctions and protecting the integrity of the financial system; and effectively manage the finances of the US government. Through its operating bureaus, the Treasury operates and maintains crucial systems for the nation’s financial infrastructure, including by producing coin and currency, disbursing payments to the American public, collecting revenue, and borrowing funds necessary to finance deficits the Federal government produces. The Treasury also manages the Government accounts and national debt, supervises national banks in conjunction with the Fed and other agencies, advises on financial and fiscal policy, and enforces Federal finance and tax laws.

The Fed is the independent central bank of the US that promotes the effective operation of the US economy.⁶The Fed has five key functions: conduct the nation’s monetary policy, promote the stability of the financial system, promote the safety of individual financial institutions, facilitate US-dollar transactions and payments, and promote consumer protection and community development. The Fed is a decentralized central banking system with a Board of Governors that guides the Fed’s operations, 12 Reserve Banks that supervise financial institutions (alongside the Board of Governors through the Vice Chair for Supervision) and provide lending and payment services, and the Federal Open Market Committee that sets US monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the US economy. While the Fed regularly communicates with the Administration and Congress, it makes its decisions regarding monetary policy independently.

The Treasury’s Role in Debt Management

While Congress retains ultimate control over spending, revenues, and the budget, it has delegated authority to the Treasury to determine how to finance any borrowing necessary to fulfill all government obligations.⁷The Second Liberty Bond Act of 1917 gave the Treasury Secretary the authority to determine the types of issues, terms, and techniques to best manage the national debt. The Treasury’s debt management role consists of running auctions to sell debt in the form of Treasury marketable securities and implementing extraordinary measures to avoid reaching the debt ceiling.

Two entities within the Treasury are responsible for debt management: the Office of Debt Management and the Bureau of the Fiscal Service.⁸When the Federal government runs a deficit (i.e., spending exceeds revenues), the Office of Debt Management works with the Bureau of the Fiscal Service to sell securities to finance government operations. The Office of Debt Management decides when and how to issue debt and manages the overall US debt portfolio. The Bureau of the Fiscal Service manages the operations and systems behind the auctioning of securities.

The main goal of the Treasury’s debt management strategy is to meet the Federal government’s borrowing needs at the lowest cost over time.⁹ The Treasury utilizes three principles to meet this goal:

The Treasury’s debt management strategy is a vital signal to financial markets given the prominence of US government securities in capital markets. Facilitating an efficient and predictable market for US debt has allowed the Federal government to raise funds to finance deficits despite the growing overall level of national debt. Most of the debt the US issues is marketable and can be resold on the secondary market.

Before describing the types of marketable securities and the auction process, it is helpful to review some basic bond terminology. A bond is a loan a purchaser makes to an issuer, with the issuer paying fixed interest payments to the purchaser at stated dates and returning the principal of the loan upon maturity of the bond.¹⁰ Bonds have a par (or face) value, and the fixed interest rate payments are known as coupons. Most bonds can be resold, giving a price on the financial markets based on supply and demand. A bond’s yield is the return on a bond based on the bond’s price and interest payments. For a bond, the yield is inversely related to price (for instance, as prices rise, yields decline).

The Treasury sells various types of marketable securities of different maturities through auctions:

The Treasury announces auctions in advance, including the securities on offer, the total amounts available, maturity dates, and other terms and conditions of the offering.¹⁶ Auctions are open to the public and involve institutional investors, banks, brokers, dealers, corporate entities, and individual investors. Participants can submit a non-competitive bid for the offered securities, meaning they accept the rate, yield, and discount margin determined at auction. Potential investors can also submit competitive bids, where the investor specifies the rate, yield, or discount margin they are willing to accept. The Treasury accepts all non-competitive bids that meet auction rules. If there are remaining securities, the Treasury ranks the competitive bids based on their yield (from lowest to highest) and accepts bids until all securities offered have been awarded. The Treasury then issues the awarded securities to successful auction participants.

Apart from marketable securities, the Treasury issues nonmarketable securities. These are primarily held by US government Trust Funds, such as those for Social Security and Medicare, and make up nearly all intragovernmental debt.¹⁷ Whenever these programs collect more revenue than disburse benefits, the surplus is required to be invested in US Treasury securities. The Treasury issues a special security that can be redeemed at face value at any time for these Trust Funds, allowing these major Federal programs to raise cash quickly when program costs exceed program revenues and protecting these programs from market fluctuations. There are also a few state and local government securities and US savings bonds (different from Treasury bonds) that are nonmarketable securities held by the public.

The Federal government has a debt ceiling (or debt limit) that restricts the amount of money that the Treasury can borrow, which is intended as a check on sustained budget deficits to promote fiscal restraint.¹⁸ In July 2025, Congress set the current debt ceiling at $41.1 trillion. As the Federal government continues to issue debt to finance deficits, the national debt increases and approaches the debt ceiling. Outside of reducing deficits, Congress may then increase the debt limit, suspend it, or abolish it. Reaching the debt ceiling would force the Treasury to decide which bills to pay and could result in a default on the national debt. This would have disastrous consequences both for government and the US economy, leading to a loss of confidence in the US government, higher interest rates, financial market turmoil, and downgrades of the US’ credit rating.

The Treasury Secretary has the authority to use extraordinary measures to avoid these negative outcomes, codified at 5 U.S.C. §8348 and 5 U.S.C. §8909, the statutes governing the Civil Service Retirement and Disability Fund and the Employees Health Benefits Fund, respectively.¹⁹ The Treasury Secretary can declare a debt issuance suspension period, allowing the Treasury to use the financial resources in the Civil Service Retirement and Disability Fund, which finances the retirement of civil servants and postal workers, to meet Federal obligations.²⁰ Other funds that the Treasury Secretary can access under the suspension of debt issuance include the Federal Employees Retirement System’s Thrift Savings Plan and the Exchange Stabilization Fund that provides funding to stabilize currency and credit markets.²¹ The Treasury can delay deposits into those funds or redeem the Treasury securities they hold to provide more headroom under the debt ceiling. Additionally, the Treasury can swap Treasury securities with obligations issued by the Federal Financing Bank, which do not count against the debt limit. Finally, the Treasury may draw down cash from the Treasury General Account which it holds at the Fed.

The Treasury Secretary can implement extraordinary measures for weeks or as many as six to nine months before the debt limit is reached.²² The amount of time the Treasury has depends on the resources available in the government funds mentioned above, the level of spending in the affected months, and actual revenue collections during the impacted time period. The point at which extraordinary measures are exhausted is known as the “X-date” and is crucial to tracking the estimated time available for Congress to act to address the debt ceiling. Once the X-date is reached, the Treasury must cease debt issuance and funding of Federal government operations and payments, essentially resulting in a default of the national debt.

The Fed’s Role in Debt Management

In the realm of debt management, the Fed serves as the Treasury’s fiscal agent.²³ The Fed has relationships with the primary dealers used for auctions of Treasury securities and plays an important role in auction operations and payments. Primary dealers are registered securities brokers and dealers with a trading relationship with the Federal Reserve Bank of New York. They are the largest purchasers of Treasury securities at auctions and often resell them onto the secondary markets.

Through its conduct of monetary policy, the Fed sets the federal funds rate, which influences short-term interest rates on Treasury securities and the market for Treasury bills.²⁴ The Fed’s actions on short-term interest rates can also affect long-term interest rates, though long-term interest rates do not often fall as quickly or as much as short-term rates. More broadly, the Fed’s success in conducting monetary policy directly impacts inflation. All else equal, high rates of inflation lower the value of assets denominated in US dollars, including US Treasury securities, compared to other assets. In a high inflation environment, investors may seek a higher yield to compensate for the lower purchasing power of the US dollar, raising interest costs for the Federal government as it continues to run significant annual budget deficits.

Finally, the Fed itself holds Treasury securities, purchasing and reselling them in the secondary market through its open market operations.²⁵ The Fed does not purchase new securities directly from the Treasury, instead purchasing them from the public through a competitive bidding process in financial markets.²⁶ Thus, the Fed does not directly finance the Federal budget deficit, instead focusing on its monetary policy goals of promoting maximum employment, stable prices, and moderate long-term interest rates. As of September 2026, the Fed holds $4.5 trillion in US Treasury securities.²⁷ The Fed significantly expanded its holdings of Treasury securities after the 2008 financial crisis and COVID-19 pandemic, peaking at nearly $5.8 trillion in the middle of 2022. This was a form of quantitative easing in which the Fed purchased long-term US Treasury securities to increase the money supply and encourage lending and investment.²⁸

Recent Debt Management Trends

To visualize the Treasury and Fed’s debt management in action, it is helpful to review recent trends for interest rates on Treasury securities, the composition (maturity mix) of the national debt, the holders of the debt, and differences in debt management operations.

As noted above, US Treasury securities have various maturities with differing short-term, medium-term, and long-term yields (interest rates). A measure of the short-term interest rate is the market yield on US Treasury securities at 2-year constant maturity. This market yield declined in the early 2000s before rising to a peak of roughly 5% as the financial crisis began. Short-term interest rates declined precipitously in the aftermath of the 2008 financial crisis as the Federal government intervened to stabilize the economy. The short-term interest rate began to rise in the late 2010s before declining again amid the COVID-19 pandemic. Over the past four years, the short-term interest rate has increased to hover around 4-5%, reflecting the growing total national debt and persistently high inflation above the Fed’s 2% target.

Figure 3 presents the market yield on US Treasury securities at 10-year constant maturity. The medium-term interest rate is less sensitive to immediate economic conditions than the yield on 2-year Treasury securities. After fluctuating between 4-5% in the mid-2000s, the rate fell to between 1.5-3% after the 2008 financial crisis. This interest rate dropped again during the COVID-19 pandemic, before rising to its current level of approximately 5%, again reflecting the fiscal outlook and elevated inflation.

The long-term interest rate is even less sensitive to short-term conditions, as shown in the chart below of the market yield on US Treasury securities at 30-year constant maturity. Between the early 2000s and the COVID-19 pandemic, the long-term interest rate generally declined from a peak of around 6% to nearly 1%. After 2020, the long-term interest rate has increased sharply, reaching over 5% in 2026. The large deficits during the COVID-19 pandemic, continued deficit spending after the economic recovery, persistent inflation, and recent geopolitical turmoil have all contributed to the increase over the past several years.

While these interest rates have different sensitivities to near-term economic conditions, it is crucial to note that all three yields (short-term, medium-term, and long-term) have increased concurrently since 2020. This trend provides evidence that bond markets are taking the national debt seriously, reducing the leeway the Federal government has to continue financing deficits cheaply—and thus the urgency of addressing the debt crisis, as financing the debt at higher rates makes the debt grow more quickly, making the problem worse and likely forcing financing higher debt levels at higher rates.

The table and charts below present the total public debt outstanding over the past decade and its composition across different US Treasury securities with varying maturities. The total national debt has more than doubled in the past ten years, rising from $19.5 trillion in 2016 to $40.2 trillion in 2026 (as of August 31). The major categories of US Treasury securities have also grown accordingly.

US Treasury Securities Outstanding (As of August 31)

It is also important to highlight the changing composition of the national debt. In 2016, intragovernmental holdings of nonmarketable securities comprised nearly 28% of the total public debt outstanding. A decade later, that proportion has declined to 19%, driven by program costs exceeding tax revenues for Social Security and Medicare that have put pressure on Trust Fund reserves made up of US Treasury securities. This makes addressing Social Security’s long-term solvency more urgent. In turn, the debt held by the public has grown as a proportion of the total national debt.

Moreover, the mix of US Treasury securities between bills, notes, and bonds has shifted markedly over the past decade. Notes held by the public declined from 44% of the total national debt to 41%. This medium-term debt has been replaced by both short-term bills and long-term bonds. Bonds held by the public as a percentage of total national debt have increased from 9% to 14% between 2016 and 2026. The proportional increase for bills held by the public has been even more dramatic, rising from 8% of total debt in 2016 to 18% a decade later. The trend towards shorter-term debt has led to approximately 33% of US publicly held marketable debt scheduled to mature within 12 months, based on data from Q3 of FY2026.[29] The Treasury will have to roll over this short-term debt in the current higher interest rate environment, causing faster refinancing of the debt at these generally higher rates and increasing the urgency of Congress to act to quickly address unsustainable fiscal deficits.

Many different types of investors hold the US national debt. These entities fall into three groups: intragovernmental holdings, domestic investors, and foreign investors. Intragovernmental debt is owed between different accounts of the Federal government and primarily consists of debt held by key Trust Funds, such as those for Social Security and Medicare, the Highway Trust Fund, and the Federal Employees Retirement Fund.³⁰ Domestic investors include Federal Reserve Banks, private banks, pension funds, state and local governments, insurance companies, mutual funds, and other private investors based in the US. Foreign investors reside outside the US³¹and can include individuals, businesses, and foreign central banks. The table and charts below demonstrate the estimated ownership of US Treasury securities across these three categories.

Ownership of US Treasury Securities by Investor Type (End of March)

The share of the debt held by the Federal Reserve and government accounts as a percentage of the total national debt has declined over the past 10 years, decreasing from 40% to 31%. For reference, US government accounts held $7.76 trillion in US Treasury securities, and the Federal Reserve Banks held $4.78 trillion at the end of June 2026.³² This means that private investors (both domestic and foreign) have had to pick up the slack as the Federal government continues to issue debt to finance deficits, reflected in the total privately held debt increasing as a percentage of the total national debt from 60% in 2016 to 69% in 2026.

Over the past decade, several types of domestic private investors have increased their US Treasury security holdings (measured as a proportion of the total national debt). Mutual funds dramatically expanded their portfolio of US Treasury securities and now hold 13% of the total national debt (up from 7% in 2016). State and local governments and depository institutions also saw their proportion of the total national debt holdings grow in the last 10 years. Of note is the “other investor” category, which includes individuals, government-sponsored enterprises such as Fannie Mae and Freddie Mac, brokers and dealers, bank personal trusts and estates, and corporate and non-corporate businesses. This group of domestic private investors now holds more than 17% of the total national debt, up from 7% a decade ago.

The holdings of foreign investors have increased in nominal terms but decreased as a proportion of the total national debt, from 33% in 2016 to 24% in 2026. This proportional decline means that domestic entities now make up more of the buyers of the national debt, portending a shrinking market for US Treasury securities that could cause rises in yields to induce more demand. The chart below presents the total holdings of investors from the top foreign countries that own the US national debt.

Sources: Securities (B): Portfolio Holdings of U.S. and Foreign Securities, Table 3: U.S. Treasury Securities Held by Foreign Residents, Treasury International Capital System, September 2026; The Conference Board, 2026. (Treasury defines the categories; “China, Mainland” excludes Hong Kong, Macau, and Taiwan.)

Measured over a five-year period, while total holdings by foreign investors increased from $7.46 trillion to $9.21 trillion, China and Japan have reduced their holdings of US Treasury securities over the past five years, with China’s holdings decreasing by 40%. Brazil has also reduced its holdings by nearly a third in that period. On the other hand, European countries including Belgium (which also includes holdings by other countries held in Belgium), France, Ireland, Luxembourg, and the United Kingdom have significantly increased their holdings. In the Western Hemisphere, Canada and the Cayman Islands have boosted their holdings as well. Foreign investment through the purchases of US Treasury securities can boost economic activity if the funds are used for productive purposes, such as stimulating the economy after a recession or investing in infrastructure or technology.³³ However, the US must send income in the form of interest payments abroad, potentially giving more control over the financial system to foreign investors and reducing the income available to domestic entities.

The Government Accountability Office (GAO) analyzed the operation of the Treasury’s debt management strategy using Treasury statistics on the debt portfolio and auctions from FY2014 to FY2025.³⁴ GAO found that the Treasury has increased its reliance on short-term debt in response to changing fiscal conditions and investor demand. (GAO also included recommendations that Congress reduce the deficit and to reform or eliminate the debt ceiling.) Specifically, the share of short-term bills has increased by 8 percentage points and the share of long-term bonds has increased by 5 percentage points between FY2014 and FY2025. During the COVID-19 pandemic, the Treasury issued bills to quickly raise funds to respond to the economic crisis, viewing it as the most cost-effective and least disruptive method to finance the government’s response. The Treasury then gradually raised its auction sizes of notes and bonds in FY2023 and FY2024 to shift more financing to these securities and re-introduced the 20-year bond in 2020, driving up bonds as a share of total outstanding debt. Finally, reforms that exempted government money market funds invested in cash and Treasury securities from Securities and Exchange Commission regulations in 2016 resulted in a significant increase of holdings from these funds, as investors moved assets from other types of money market funds to government money market funds.

The higher share of short-term debt creates rollover risk, whereby frequently rolling over large amounts of debt increases the sensitivity to market interest rate fluctuations.³⁵ As of September 2025, about 33% of debt outstanding was set to mature over the next 12 months. Nevertheless, the increase in bonds as a share of the total debt outstanding balances rollover risk, with 32% of the debt not maturing for at least five years. The balance between short-term and long-term borrowing led the weighted average maturity of marketable debt to nearly reach historic highs in 2025. The Treasury Borrowing Advisory Committee (TBAC)—a Federal advisory committee comprised of senior officials from banks, broker-dealers, asset managers, hedge funds, and insurance companies—assessed in 2024 and 2025 that the current composition of Treasury’s debt portfolio appropriately balances cost and risk, though TBAC notes that the US faces a costlier debt issuance environment in the face of persistent structural deficits and higher interest rates. In its Q3 2026 report to the Treasury Secretary, TBAC assesses that the Treasury remains adequately funded for the remainder of FY2026, though the funding gap begins to widen in FY2027 and increases further in FY2028.³⁶

The Treasury has also increased its auction size and frequency since FY2014 to meet larger borrowing needs.³⁷Auction sizes for bills increased the most due to borrowing needs associated with the COVID-19 pandemic; auction sizes for notes and bonds increased significantly but more gradually, consistent with the Treasury’s strategy of predictable and regular auctions. The Treasury also held 444 auctions in FY2025, an increase of 60% from FY2014, primarily due to more auctions for bills and new maturities and products on offer. (More generally, the overall level of debt is an underlying factor associated with increasing auction sizes.) Treasury officials stated to the GAO that auction systems can process this larger volume and more staff can be hired to meet demand.

GAO also assessed whether the larger size and higher frequency of auctions has affected investor demand for US Treasury securities.³⁸ GAO analyzed the bid-to-cover ratio (the total amount of bids received compared to the total amount accepted), the primary dealer share of auction awards, and yields to gauge changes in investor demand. GAO found that bid-to-cover ratios have slightly declined for certain securities but not enough to suggest meaningfully lower demand. However, GAO confirmed that larger auction sizes generally coincide with slightly lower bid-to-cover ratios. The primary dealer share of auction awards has declined between FY2014 and FY2025, suggesting strong demand among other investors at auction.

Finally, GAO analyzed the differences in yields investors were willing to accept between a 10-year Treasury note and the fixed-rate 10-year Secured Overnight Financing Rate (SOFR) swap contract (a comparable investment vehicle).³⁹ While investors historically were willing to accept a lower yield on US Treasury securities in exchange for the liquidity, depth, and safety of the Treasury security market, GAO found that the spread between these two yields was negative and widening between 2022 and 2025, suggesting investors are no longer willing to pay a premium for holding US Treasury securities compared to other assets. As seen with the declining foreign holdings of China and Japan over the past five years, investors that have traditionally viewed US Treasury securities as a safe haven and hedge on risk are diversifying away from US government debt, likely in part to balance the rising perceived risks of holding US Treasury securities. This trend could make future financing of deficits more expensive.

Policy Considerations

To meet its debt management goal of funding the government at the least cost to the taxpayer over time, the Treasury seeks to implement a comprehensive debt management strategy that made US Treasury securities an integral part of global financial markets.⁴⁰ In its description of its debt management strategy, the Treasury aims to offer high quality products through regular and predictable issuance of US Treasury securities; promote a robust, broad, and diverse investor base; support market liquidity and market functioning; keep a prudent cash balance; and maintain manageable rollovers of debt and changes in interest expense. The Treasury’s policy documents outline that the Treasury should not be opportunistic and not time the market, nor should it react to current rate levels or short-term fluctuations in demand. The agency seeks continuous improvement in the auction process, strives for transparency, and regularly consults with market participants, such as through its work with TBAC.

To determine its borrowing needs, the Treasury assesses the volume of maturing issues (the securities that are set to rollover), the budget deficit or surplus, and changes in the Federal government’s cash balance.⁴¹ The Treasury also needs flexibility to raise cash or pay down debt in response to emergencies and uncertainty in the economy and policy environment. As evidenced during the COVID-19 pandemic, the Treasury prefers shorter maturities for this purpose, though there are alternative approaches to issuing debt during emergencies that some academic researchers believe may reduce average borrowing costs over time (discussed below).

To execute its debt management policies, the Treasury adjusts auction sizes and frequencies, modifies its offerings of securities, conducts buybacks, regulates auctions, and conducts market monitoring, consulting, and surveillance, including through surveys of the primary dealers. In essence, the Treasury is attempting to maintain a liquid and efficient market for US Treasury securities, which is central to the financial system as Treasury securities can be used for investment, portfolio hedging, monetary policy execution, and reserve and foreign exchange management.

Treasury’s role should be to issue Treasury securities regularly and predictably to achieve the least expected cost to taxpayers over time. The Treasury must offer a mix of securities to advance this policy, which influences the liquidity in the market. In general, longer-term securities have higher yields (returns) than shorter-term securities because of the higher risk of lending over a longer period, for which investors ask to be compensated.⁴² Additionally, the level of interest rates is influenced by the strength of the economy and the level of inflation via the Fed’s monetary policy operations. When the economy is doing well or there is high inflation, it may be prudent for the Treasury to switch to shorter maturities for its securities to avoid locking in relatively high interest rates for years or decades, though this introduces uncertainty in the long-term and can create volatility from the Treasury entering the market more often. In a lower interest rate environment, the Treasury may decide to finance at longer maturities to capitalize on the lower borrowing costs.

The Treasury’s debt management strategy allows the Department to address challenges in a timely manner. The Treasury must navigate uncertainty related to legislative commitments, macroeconomic forecast errors, and technical modeling limitations when it makes its forecasts of borrowing needs.⁴³ The Treasury is also too large an issuer to behave opportunistically in debt markets. GAO identified four challenges that the Treasury faces as it implements its debt management strategy: uncertain borrowing needs, rising borrowing and financing needs, maintaining investor demand for Treasury securities, and disruptions to Treasury market liquidity.⁴⁴

To mitigate the challenges of uncertain borrowing needs, the Treasury’s debt managers meet frequently with the Office of Fiscal Projections to review forecasts and cash balances and estimate short-term borrowing needs.⁴⁵ For longer-term borrowing, the Treasury reviews a range of external forecasts for the US fiscal outlook, including from the Congressional Budget Office, Office of Management and Budget, and primary dealers. The Treasury also has a policy of keeping enough funds in the Treasury General Account to meet one week’s worth of government obligations. To address rising borrowing and financing needs, the Treasury leans on its regular and predictable issuance strategy, which minimizes disruption in financial markets, reduces risks to investors, and leads to lower borrowing costs over time. The Treasury regularly consults with primary dealers in preparation for auctions, and it avoids altering pre-announced issuance plans to reduce uncertainty and volatility in the market.

To support strong demand for Treasury securities, the Treasury issues different security types, conducts market analysis and surveillance to assess shifts in demand, issues securities in a regular and predictable market, and promotes a well-functioning and liquid secondary market for US Treasury securities. To address disruptions to Treasury market liquidity, the Treasury works closely with the member agencies of the Inter-Agency Working Group for Treasury Market Surveillance to understand the causes of market disruption and strengthen the market. The Treasury has gained access to more granular data, hosted conferences with stakeholders, published reports with recommendations, and implemented a liquidity support buyback program to replace older securities that tend to trade less frequently with newer ones that are more liquid.

GAO concurs that Treasury’s debt management strategies are consistent with World Bank and IMF guidelines for public debt management.⁴⁶ A November 2025 TBAC analysis also found that Treasury’s debt issuance mix is well positioned to balance low levels of debt service costs and volatility. Nevertheless, TBAC raised concerns with higher debt levels, larger deficits, and higher interest rates demanded by investors since 2019, which have led to higher baseline levels of expected debt service costs and cost volatility.

In the academic literature, researchers have analyzed alternative approaches to debt management under distinct fiscal conditions. If investors are concerned about the effect of inflation on bonds, the Treasury can issue more inflation-indexed “real” bonds, such as TIPS.⁴⁷While nominal debt can be eroded by periods of high inflation that result in increases in yields to compensate, inflation-indexed debt serves as a credible commitment device against monetizing the national debt (i.e., having the central bank create money to buy government bonds) and leads to lower inflation, inflation persistence, and borrowing costs driven by inflation risk. To implement this strategy, the Treasury should maintain a diversified portfolio of nominal and inflation-linked debt to maximize their relative benefits; favor a stable, meaningful indexed-debt share over relying entirely on discretionary anti-inflation promises; and consider the maturity of the inflation-indexed bonds as the inflation-stabilizing benefits of this debt are stronger with higher debt levels and longer maturities.

Other researchers suggested that the Treasury should also consider the market liquidity cost of issuing large amounts of securities at a given maturity, because a large auction can depress the issue price of a bond relative to the price on secondary markets, as primary dealers must absorb and resell the large quantity of auctioned bonds.⁴⁸ The researchers who studied this topic found that optimal issuance is generally spread across maturities rather than concentrated in the cheapest-looking segment of the yield curve. The amount issued at each maturity should rise with its financing advantage to the government and fall with its estimated price impact and liquidity cost. The desired maturity structure also balances smoothing government spending with refinancing and interest-rate risk. The researchers recommend using a regular, diversified issuance calendar across maturities to avoid flooding any one market segment; explicitly comparing primary and secondary-market pricing; evaluating maturities on an all-in marginal financing cost, not just yields; and regularly calibrating the strategy and maturity mix to balance short-term funding advantages against rollover risk and the insurance value of longer-term debt.

Another group of researchers studied the optimal strategy for debt maturities when a government cannot commit future governments to a specific fiscal policy.⁴⁹ The typical strategy to hold large short-term assets and issue long-term debt to hedge spending shocks breaks down in this environment because investors recognize the incentives for governments to manipulate bond prices and interest rates, thus demanding higher yields up front. The researchers argue that the optimal structure is nearly flat across maturities so that the government owes roughly the same amount at each future date, minimizing the temptation for governments to distort fiscal policy and lowering average borrowing costs. While there is less insurance against fiscal shocks and more variability in taxes and other fiscal policies, the researchers find that the lower borrowing costs of the strategy are a worthwhile tradeoff. The researchers recommend avoiding extreme maturity bets (favoring one type of maturity over another), targeting an approximately even repayment profile across future dates rather than concentrating obligations in a few maturities, and actively managing issuance and maturities to preserve that flat profile as debt rolls over.

There is also the question of how to issue debt during an emergency, such as the COVID-19 pandemic. In June 2020, The CEO Center recommended a debt management strategy of separating the new debt incurred from recovery costs and financing to stabilize the economy during the pandemic.⁵⁰ This debt would then be put into a single separate financial entity, such as a public corporation. The Federal government would finance the debt with bonds of the longest possible maturity, such as 40- or 50-year bonds, and would pay the interest on the debt through dedicated tax revenues clearly separated from other revenues. At the time, long-term interest rates were very low, and investors were willing to consider bonds with very long-term maturities to finance the once-in-a-lifetime nature of the pandemic downturn. Separating the debt and the revenue source dedicated to servicing that debt from other debt also promotes the credibility of the debt management strategy and prevents future manipulation. This debt management strategy during emergencies aligns with previous research on debt management that emphasizes lower debt payments when fiscal conditions are poor, such as when public spending is high or the tax base is weak, to avoid raising taxes amid the economic downturn.⁵¹ In this scenario, inflation-indexed, long-term debt should be the baseline, with the government using maturity composition to hedge shifts in the real yield curve to lower financing costs.

Despite the Treasury’s efforts to mitigate challenges to effective debt management, there are several risks to the market for US Treasury securities that fall largely outside of the debt management policies. In its 2026 Global Debt Report, the OECD acknowledges the massive increase in government and corporate borrowing over the past decade.⁵² In its 2026 Article IV Consultation with the United States, the IMF projects the general government deficit remain in the 7-7.5% of GDP range over the next several years, with debt exceeding 140% of GDP by 2031.⁵³ Noting persistently high fiscal deficits, the continued rise in debt-to?GDP ratio, and an increasing share of short?maturity debt, the IMF stressed the pressing need to address the US’s longstanding fiscal imbalances through a frontloaded fiscal adjustment. The IMF emphasized that the US’s current fiscal trajectory creates a growing financial stability tail risk for the country and for the global economy, given the importance of the Treasury market for the global financial system.

An aging population and rising health care costs are structural trends in the US driving unsustainable government deficits, putting pressure on Congress to enact fiscal reform to reduce borrowing and financing needs.⁵⁴ Historically low interest rates after the 2008 financial crisis provided cheap financing for deficits; recent interest rate increases mean the debt is now more expensive to service and is more likely to crowd out other priorities. Additionally, the debt ceiling is approaching faster than anticipated,⁵⁵ increasing the risk of government default and threatening the status of US Treasury securities as a safe haven for investors.⁵⁶

The OECD notes the rising cost of long-term borrowing, with 30-year yields rising significantly across most countries, and the response from governments to issue shorter maturities.⁵⁷ While this may lower short-term interest costs, the shift increases refinancing risks associated with rolling over significant amounts of debt in a challenging interest rate environment.⁵⁸ Geopolitical conflicts, such as the conflict in the Gulf and war in Ukraine, increase economic volatility and uncertainty, raising risks and potentially increasing interest rates to compensate. US Treasury securities also face competition in the debt markets from other sources, particularly AI-related corporate debt issuance.⁵⁹ As central banks around the world reduce their bond holdings, the investor base for government debt is becoming more price sensitive and potentially shrinking, increasing volatility in the market.⁶⁰

Given the prominence of the US in the global financial system, the market for US Treasury securities interacts with challenges in other economies and currencies. For example, recent financial stress in Japan regarding government debt and the Japanese yen prompted an intervention in the bond market from the US Treasury.⁶¹ In an unexpected statement, the Treasury also recently announced an increase in its liquid buyback program after having previously released its buyback operation sizes.⁶² Short-term interventions and unplanned announcements threaten the credibility of the US Treasury and rarely lead to long-term outcomes unless they are a credible signal of future policy change. The IMF emphasizes the risks of active management of a government’s debt portfolio, including possible financial losses, potential conflicts of interest, and adverse signaling regarding monetary and fiscal policies.⁶³ Whatever the merits of these types of interventions, the Administration should work with Congress to address the US’ structural budget deficit to reduce future borrowing needs and send a strong message to markets that the US will address its large and rapidly growing national debt.

The CEO Center’s Solutions Brief on the budget process highlights several proposed reforms to restore a predictable and fair process and prevent the late and incomplete budgets that have characterized recent decades.⁶⁴ To improve timeliness, Congress may consider moving from an annual budget process to a biennial one, which can include a two-year budget resolution, two-year appropriations, and/or multiyear authorizations of programs. To mitigate dysfunction and challenges to regular order, Congress should strengthen budget enforcement mechanisms, consider reforms to the debt limit, and implement automatic continuing resolutions at the start of a fiscal year if a budget is not passed on time. To incorporate longer-term planning into the process, Congress can extend CBO’s baseline budget projections from 10 to 25 years and establish statutory medium-term and long-term for appropriations and the debt-to-GDP ratio.

The CEO Center’s recent Solutions Brief on the need for a bipartisan fiscal commission highlights that only Congress can develop a comprehensive plan to address the debt crisis, which will include both new revenues and spending reductions.⁶⁵ Establishing a bipartisan fiscal commission in Congress would break partisan logjams, focus both political parties on finding a solution, bring bipartisan credibility to reforms, and encourage public awareness and support. The commission’s three primary strategic objectives should be to improve the long-term fiscal condition of the Federal government, hold the expected debt-to-GDP ratio to a more sustainable level (such as 100%), and address the long-term solvency of the Social Security and Medicare Trust Funds. For a commission to be successful, everything must be on the table: the commission should undertake a top-to-bottom review of all Federal spending and revenue sources.

While Congress has only a very limited role in the debt management process itself, it should consider further oversight of the process to ensure its transparency and identify any problems or concerns with how the Treasury and the Fed manage their respective roles.

Endnotes

Trusted Insights for What’s Ahead

The Treasury implements a debt management strategy with a goal to meet the government’s borrowing needs at the lowest cost over time through regular and predictable issuance of debt, transparency in decision-making, and continuous improvement of the auction process.
The Fed serves as the Treasury’s fiscal agent, decides and implements monetary policy that influences interest rates for US Treasury securities, and itself holds Treasury securities.
Interest rates for US Treasury securities have increased in the past five years, as has issuance of both short-term and long-term debt. Domestic private investors such as mutual funds have increased their holdings as a proportion of the total debt, while intragovernmental holdings and debt owned by foreign and international investors have decreased as a proportion of the debt.
The Treasury’s debt management strategy has largely been successful in operating an efficient market for US Treasury securities despite persistent fiscal deficits and economic volatility. However, pressures arising from the very large volume of debt itself, debt management strategies, an aging population, rising health care costs, geopolitical tensions, continued high inflation, changes in the investor base, and competing demand from AI-related corporate debt issuance pose increasing risks to the functioning of the US Treasury securities market.

Introduction

The Treasury’s Role in Debt Management

Selling Treasury marketable securities

Issue debt in a regular and predictable pattern,
Provide transparency in the decision-making process, and
Seek continuous improvements in the auction process.

The Treasury sells various types of marketable securities of different maturities through auctions:

Treasury bills are short-term securities with terms from 4 weeks to 52 weeks.¹¹ The Treasury sells bills at a discount or at face value, and the holder of the bill is paid its face value when the bill matures.
Treasury notes have maturities of between 2 and 10 years.¹² Notes pay a fixed rate of interest every six months until maturity.
Treasury bonds are long-term securities with terms of 20 or 30 years.¹³ Bonds pay a fixed rate of interest every six months until maturity.
Floating Rate Notes (FRNs) are short-term securities that mature in 2 years, pay interest quarterly, and have a floating interest rate tied to the latest discount rate for the 13-week Treasury bill.¹⁴
Treasury Inflation-Protected Securities (TIPS) are intended to protect against inflation by adjusting the principal to account for changes in prices (unlike other securities where the principal is fixed).¹⁵ The Treasury uses a version of the Consumer Price Index to adjust the principal of a TIPS, with the purchaser receiving either the inflation-adjusted principal or the original amount (in the case of deflation) at maturity, never below. TIPS are issued with maturities of 5, 10, or 30 years, and they pay a fixed rate of interest every six months.

Implementing extraordinary measures to avoid reaching debt ceiling

The Fed’s Role in Debt Management

Figure 1

Sources: Assets: Securities Held Outright: U.S. Treasury Securities: All: Wednesday Level (TREAST), Board of Governors of the Federal Reserve System (US), September 10, 2026; The Conference Board, 2026.

Recent Debt Management Trends

Yields for US Treasury securities

Figure 2

Sources: Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity, Quoted on an Investment Basis (DGS2), Board of Governors of the Federal Reserve System (US), September 15, 2026; The Conference Board, 2026.

Figure 3

Sources: Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis (DGS10), Board of Governors of the Federal Reserve System (US), September 15, 2026; The Conference Board, 2026.

Figure 4

Sources: Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity, Quoted on an Investment Basis (DGS30), Board of Governors of the Federal Reserve System (US), September 15, 2026; The Conference Board, 2026.

Composition and maturity mix of national debt

Table 1

Sources: U.S. Treasury Monthly Statement of the Public Debt (MSPD), U.S. Treasury Department, August 2016 and August 2026; The Conference Board, 2026.

Figure 5

US Treasury Securities Outstanding (As of August 31)

Sources: U.S. Treasury Monthly Statement of the Public Debt (MSPD), U.S. Treasury Department, August 2016 and August 2026; The Conference Board, 2026.

Holders of the national debt

Table 2

Sources: Treasury Bulletin, OFS-2 - Estimated Ownership of U.S. Treasury Securities, U.S. Treasury Department, September 2026; The Conference Board, 2026.

Figure 6

Ownership of US Treasury Securities by Investor Type (End of March)

Sources: Treasury Bulletin, OFS-2 - Estimated Ownership of U.S. Treasury Securities, U.S. Treasury Department, September 2026; The Conference Board, 2026.

Figure 7

Trends in debt management operations