US debt crosses $40 trillion, global markets on edge

The United States' public debt has crossed $40 trillion for the first time, with the fiscal deficit reaching $432 billion in July, the highest monthly figure since March 2021 and a record for that month, according to a Jefferies research report. NDTV Profit reports that the brokerage sees the 10-year Treasury yield crossing 5% as a potential trigger for greater pressure on US equities, which could also impact Indian markets.

The Times of India adds that the fiscal deficit in the first 10 months of the fiscal year reached $1.799 trillion, already exceeding the $1.775 trillion deficit recorded for the whole of FY25. The annualised fiscal deficit-to-GDP ratio rose to 6.1% in July from 5.7% in June, as per Jefferies. Rising Treasury yields and higher government spending are compounding the fiscal strain, with net interest and entitlement spending rising to 98.4% of annualised government receipts.

Jefferies notes that the fiscal backdrop is supportive for gold, while rising Treasury yields could make equity valuations vulnerable if the 10-year yield breaches the 5% threshold. The 10-year Treasury auction yield recently reached 4.683%, its highest since 2007.