Washington's borrowing binge is unsustainable long-term, but Treasuries remain a cornerstone of global portfolios
The US is heading toward a federal debt load that could reach 175% of gross domestic product over the next three decades unless Congress takes corrective action, according to a new special report from the Wells Fargo Investment Institute.
But the firm's Global Fixed Income Strategy Team stopped well short of sounding an alarm for investors, arguing instead that the trajectory, while troubling, remains manageable.
The report draws on Congressional Budget Office projections and Treasury Department data to paint a detailed picture of the country's fiscal position. The debt-to-GDP ratio is already expected to hit 101% in 2026, matching its highest level since the close of World War II.
More than $15 trillion in publicly held US debt is set to mature within the next three years and will almost certainly need to be refinanced.
At current interest rate levels, somewhere between 3.75% and 5.25%, the Wells Fargo team estimates that refinancing alone would add roughly $300 billion in annual debt service costs. Stack annual deficits of $1.8 to $2.0 trillion on top, and the country could tack on another $5 to $6 trillion in publicly held debt over the same period, bringing an additional $200 to $250 billion in annual interest expense.
Treasuries demand
Despite that outlook, Wells Fargo's strategists maintained that demand for Treasuries remains robust and that no immediate crisis is on the horizon.
They pointed to recent Treasury auctions, which have been well received by investors, as evidence that markets are not yet demanding a meaningful premium to hold U.S. government paper. Long-term yields did rise during March and April 2026, but the report attributed those moves primarily to inflation expectations tied to rising energy prices rather than any erosion of confidence in American creditworthiness.
On the question of whether the US could ever default on its obligations or resort to monetizing the debt, the team was direct.
The US issues debt in its own currency, has a broad tax base, and currently possesses the legal and institutional capacity to service its obligations. The Federal Reserve, they added, is legally prohibited from directly financing government spending and would not be expected to break from that constraint, as doing so would undermine its independence and ultimately push borrowing costs higher rather than lower.
The historical record offers some reassurance.
The report draws a parallel to the fiscal pressures of the 1980s and early 1990s, when a sharp rise in debt service costs prompted Congress to pass a series of budget control measures, including the Balanced Budget and Emergency Deficit Control Act of 1985, the Budget Enforcement Act of 1990, and the Omnibus Budget Reconciliation Act of 1993. The period from 1994 to 2001 ultimately shaved nearly 20 percentage points from the public debt-to-GDP ratio.
Whether today's Congress has the appetite for similar action is another matter. The report noted that lawmakers show no current inclination toward fiscal restraint, and suggested that meaningful political motivation may only materialize when falling approval ratings — driven by higher yields squeezing discretionary spending — force their hand. The challenge is expected to become more acute approaching 2032, when Social Security and Medicare will require additional funding.
Complicating the revenue picture is the fate of tariff policy. The report noted that the Supreme Court's repeal of IEEPA tariffs in February 2026 is expected to eliminate more than $1 trillion in revenue over the next decade, according to estimates from the Committee for a Responsible Federal Budget. While markets did not react sharply to that ruling, Wells Fargo cautioned that tariff revenue is difficult to count on as a long-term budget solution, noting that as households, businesses and foreign companies adjust their purchases to avoid tariffs in the coming years, the federal tariff revenue could peak and then decline sharply, as we saw after the 2018 tariffs.
No good substitutes
The report noted that the US Treasury market is the largest and most liquid in the world and is roughly the size of the other major tradable markets combined, meaning there are simply no good substitutes for US Treasury securities. Dollar-denominated assets continue to dominate foreign government reserves for precisely that reason.
The report recommended that investors continue to hold Treasuries as part of a long-term allocation while acknowledging that a higher-for-longer interest rate environment is the most probable near-term outcome. For those seeking to hedge against fiscal risk more broadly, Wells Fargo pointed to portfolio diversification across asset types and geographies — including European equities and bonds, real estate, infrastructure, and gold — as appropriate tools.
The overarching conclusion was that the situation calls for urgency, not panic. In our view, U.S. finances require adjustments to spending and revenue. Procrastination by Congress is likely to make the ultimate adjustments larger and more dramatic.
