A US debt spiral looks closer as 10-year Treasury yields pass 5% and interest costs top $1 trillion. Yet growth of 8.5% before inflation still outruns the 3.4% average rate on that debt.

The Bureau of Economic Analysis measured that 8.5% as an annualized second-quarter pace. However, the 3.4% average partly reflects older bonds, and TD Securities says higher costs feed through as they mature.

Why Haven’t 5% Yields Triggered a US Debt Spiral?

Yields touched a 24-year high last Thursday, but the US does not refinance its debt all at once. TD Securities puts the debt’s weighted-average maturity, or average time to repayment, at about 5.9 years.

Bonds excluding short-term bills still carry an average coupon, or fixed interest rate, of 3.1%.

TD estimates fiscal 2026 interest costs at about $1.1 trillion. Looking ahead, it projects $1.4 trillion in 2027 and $1.6 trillion in 2029 if yields hold.

In addition, the Congressional Budget Office projects public debt at about 101% of gross domestic product (GDP) in fiscal 2026.

Consumer spending added about 2.5 points to real GDP growth in the second quarter, while imports subtracted roughly 1.6. Source: US Bureau of Economic Analysis

“A fiscal apocalypse is not upon us just yet.”

Gennadiy Goldberg and Molly Brooks, strategists at TD Securities, in a note cited by CNBC

What Would Turn the Math Against Washington?

TD links the surge partly to a stronger economy, expected Federal Reserve rate hikes and higher oil prices. Similarly, Ian Lyngen, head of US rates strategy at BMO Capital Markets, cites stronger actual and expected growth.

Matthew Reese, head of global bond strategies at L&G Asset Management, warns the loop worsens as nominal growth fades. However, Japan avoided a crisis despite heavier debt and weak growth, he notes.

BMO’s survey ranks housing as the likeliest first casualty of higher inflation-adjusted rates at 42%, ahead of stocks at 26%. By contrast, only 1% named the labor market.

Meanwhile, Hong Kong’s Hang Seng Index slid as much as 3% Friday as its currency peg imported US yields.

The cushion appears to depend on growth. Lyngen says the only lasting brake on yields is clear evidence that the economy or risk assets are giving way.

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