Surging Interest Costs Drive U.S. Fiscal Deficit to $316 Billion in May; Strong Demand in 10-Year Treasury Auction Eases Market Concern

The U.S. Treasury Department reported on Wednesday that the federal fiscal deficit expanded to $316 billion in May, pushing the total deficit for the first eight months of the current fiscal year to $1.36 trillion—an increase of 14% compared to the same period last year. Interest payments on federal debt have become a leading contributor to fiscal pressure, with May’s interest expenses exceeding $92 billion and year-to-date payments reaching $776 billion. The annual interest burden is projected to surpass $1.2 trillion.

Despite a 15% year-on-year increase in May revenue and a 6% cumulative rise this year, overall spending rose by 8%, continuing to widen the budget gap. Tariff collections also played a role, with May generating $23 billion and the year-to-date figure reaching $86 billion, a 59% increase from the previous year.

Against this backdrop, the $39 billion 10-year Treasury auction held on Wednesday showed unexpectedly strong investor interest. The winning yield was 4.421%, about 0.6 basis points lower than the market yield prior to the auction. Domestic direct bidders accounted for 20.5%, notably higher than the typical 14.5%, while overseas participation was slightly below average at 70.6%. The strong results eased concerns over diminished demand for U.S. debt, with the 10-year yield falling to 4.411% following the auction.

Although some analysts remain cautious due to ongoing tariff policies and their potential impact on foreign investment appetite, the auction results suggest that elevated yields continue to attract robust interest. Still, the rising debt load and deficit-to-GDP ratio—currently above 6%—have prompted warnings from leading financial figures about possible future market instability.