USA's fiscal position is clearly deteriorating, but markets are not yet behaving as though investors have lost confidence in the United States itself. The distinction is important: high yields are currently being driven substantially by inflation/rate expectations and debt supply, rather than an identifiable Treasury-credit panic. Reuters reports that Treasury/Overnight Index Swap spreads remain relatively "well behaved", which argues against calling this a sovereign-debt crisis at present.
Reuters 13 May 2026: "This resilience in credit spreads comes down to several key factors anchored in fundamental market shifts:
| Indicator | Current Reading | Status | Watching |
|---|---|---|---|
| 10-year Treasury | 4.73% | 🟠 | 5% persistently would be substantially more concerning |
| 30-year Treasury | 5.21% | 🟠 | Recently reached 5.327%, highest since 2007 |
| Treasury auction demand | 10Y bid/cover 2.53×; 30Y 2.39× | 🟠 | Demand remains adequate; a succession of weak/tailing auctions would turn this red |
| Net interest / federal revenue | ~20.8% FYTD | 🔴 | Roughly one dollar of interest for every five dollars of revenue |
| Federal deficit / GDP | CBO baseline 5.8%; actual deficit running worse than baseline |
🟠→🔴 | FYTD deficit already $1.80tn with two months remaining |
| US dollar | DXY ~99.7, +~0.9% this week | 🟢 | No evidence this week of flight from USD |
| Treasuries + USD + equities falling together | No | 🟢 | This remains our most important crisis warning indicator |
The latest 10- and 30-year yields finished Friday around 4.728% and 5.213% respectively. They are high enough to constrain equity valuations, but Friday's increase followed Fed Chair Kevin Warsh's hawkish inflation comments rather than an obvious fiscal-confidence event.
The figure of most concern: interest/revenue
Through July, Treasury figures show approximately USD 931.4 billion of net interest expense against USD 4.485 trillion of federal receipts.
That works out to: USD 931bn ÷ USD 4.485tn ≈ 20.8%
So more than 20 cents of every federal revenue dollar is effectively being absorbed by net interest before paying for defence, Social Security, Medicare, infrastructure or anything else. That indicator has therefore crossed our red threshold (>20%).
The deficit has also deteriorated
The July federal deficit was a record USD 432 billion for that month, taking the FY2026 deficit through July to $1.799 trillion—already exceeding the entire FY2025 deficit, with August and September still to come.
The Congressional Budget Office (CBO)'s February baseline had projected $1.9 trillion / 5.8% of GDP for the whole of FY2026 and described the fiscal trajectory as unsustainable. Actual developments now make that baseline look increasingly optimistic.
But Treasury buyers have not disappeared. This is an important counterweight.
The August 10-year Treasury auction had a bid-to-cover ratio of about 2.53× and the 30-year auction about 2.39×. The 30-year borrowing cost was exceptionally high—about 5.22%, the highest auction yield since 2001—but demand was still described as solid.
There is therefore a difference between:
We are currently seeing the first, not the second. And the USD is giving us another reassuring signal: The dollar actually rose about 0.9% over the week, with DXY around 99.7 Friday.
Meanwhile, Friday brought:
That is primarily consistent with higher interest-rate expectations.
The pattern that would create much more concern is:
This is probably the most immediate investment risk.
On Friday the Nasdaq fell 0.52%, compared with 0.25% for the S&P 500, as rising rates disproportionately hurt technology and smaller companies. The mechanism remains exactly the one we discussed: highly valued technology companies represent unusually long-duration assets. A sustained 10-year Treasury yield around 5% means that even excellent earnings growth can coexist with falling share prices because investors apply higher discount rates to those future earnings. For AI infrastructure there's an additional effect: datacentres, power generation and semiconductor capacity involve enormous amounts of capital. Higher long-term financing costs progressively raise the hurdle rate on those investments.Australian markets aren't presently signalling contagion. The ASX 200 actually gained about 0.37% for the week, while Australian technology shares performed particularly strongly on Friday.
The RBA's August assessment is also useful. It says US yields have risen while Australian government yields have actually declined somewhat relative to most other advanced economies. The AUD remains approximately 5% higher than at the beginning of 2026 on a trade-weighted basis.
So at present Australia's exposure is 🟢 → 🟠 rather than 🔴
Current dashboard + short analysis.
Previous readings
30 Aug 2026 — 🟠 AMBER →
23 Aug 2026 — 🟠 AMBER →