- U.S. gross federal debt surpassed $38T in October 2025 after a rapid $1T jump in about two months, pushing interest costs toward $1T+ a year.
- Corporate bond issuance, led by investment-grade debt, is running near record pace in 2025 as firms fund large investment programs such as AI infrastructure.
- With investment-grade spreads near multi-decade lows, corporate bonds look unusually attractive versus Treasuries even as Treasury supply stays heavy.
- The combined surge in Treasury and corporate borrowing risks higher yields and tighter financial conditions, and could expose investors if cash flows fail to support rising leverage.
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1. U.S. Debt Exceeded $38 Trillion
The gross federal debt crossed $38.0 trillion on October 22, 2025, from about $37.0 trillion in mid-August—a $1 trillion increase in approximately 71 days, the fastest climb outside the COVID era. The debt held by the public is now about equal to U.S. GDP, a level only seen during major wars. Interest on the debt is projected to cost over $1 trillion in FY2025, surpassing many major budget lines and crowding out other spending.
2. Surge in Corporate Bond Supply
In 2025, U.S. corporate bond issuance, particularly investment-grade, has surged. As of end-October, issuance stood at roughly $1.93 trillion year-to-date—up nearly 9% versus the year before. High-yield issuance rose more (~14%). Full-year 2025 investment-grade issuance is expected to be between $1.5–1.7 trillion, potentially exceeding previous records from 2020. A key driver is AI infrastructure spending by top tech firms, which alone have raised tens of billions in corporate debt.
3. Competition Between Corporate Bonds and Treasuries
Corporate bond coupon spreads over U.S. Treasuries have narrowed substantially—in some cases approaching or even undercutting yields on equivalent Treasurys for top-rated issuers. Weak auction demand for long-dated Treasurys, combined with strong demand for corporate debt, has increased yields and made corporate bonds relatively more attractive. Treasury issuance remains large—through end-September gross issuance was ~$22.3 trillion, with outstanding Treasury debt nearly $29.7 trillion.
4. Strategic Implications & Stress Points
– Treasury borrowing costs may rise further to compensate investors for choosing safer sovereign debt over riskier corporate bonds.
– As more issuance focuses on corporate debt that relies on long-term returns (e.g. AI infrastructure), cash flow risk and default risk increase if economic conditions weaken.
– Policy trade-offs grow sharper: balancing fiscal discipline (deficit reduction, spending control) with meeting current borrowing needs, especially with rising interest rates.
– Investor confidence and global credibility could erode if debt trajectories are viewed as unsustainable, potentially triggering risk premia jumps.
5. Open Questions
• How strong is demand from foreign holders for both Treasuries and corporate bonds—can foreign capital absorb both simultaneously?
• Are investors underestimating credit risk in fast‐growing corporate issuance, especially in sectors spending heavily ahead of revenue (AI, cloud)?
• What mix of maturities does Treasury and corporate issuance take—and how sensitive are financing costs to rising yields or credit spreads?
• How will the Fed and regulatory policy respond if debt service, inflation, and interest rates diverge unfavorably?
Supporting Notes
- The United States’ gross national debt reached $38.019 trillion as of October 22, 2025, having added $1 trillion since mid-August.
- The deficit for the fiscal year ending recently was about $1.8 trillion and is projected to continue rising toward $2 trillion annually.
- Corporate bond issuance year-to‐date through October 2025 totaled about $1,934.1 billion, an increase of roughly 8.8% year-over-year.
- Investment-grade corporate bond issuance in 2025 has surpassed the total for all of 2024, tallying over $1.5 trillion, making 2025 the second-highest year on record.
- AI-linked borrowing by companies like Amazon, Meta, Oracle and Alphabet represents around 30% of net investment-grade issuance.
- Investment-grade corporate spreads narrowed to approximately 0.74 percentage points over Treasuries in mid to late 2025, among the lowest levels in decades.
- Treasury gross issuance through end-September was $22.3 trillion, outstanding Treasury securities about $29.7 trillion, both rising year-over-year by upwards of 4–7 %.