In minutes released Aug. 5, the Treasury Borrowing Advisory Committee—a panel of senior bond dealers and investors, known as TBAC, that advises the Treasury on its own funding—warned that at current auction sizes, the government faces a $1.45 trillion funding shortfall in fiscal 2027–28. 

What that means takes a primer to understand how Washington actually borrows. The Treasury doesn’t take out one huge annual loan, rather, it raises cash by selling debt at regularly scheduled auctions. The shortest-dated IOUs, sometimes called “T-bills,” come due in a year or less, while the longer-dated notes and bonds — known as “coupons” — run anywhere from two to 30 years. 

The T-bills offer Washington, now, a rare opportunity to borrow money for the cheap. 

At the time of writing, the three-month bill yielded around 3.8%, while the 10-year Treasury yield sat around 4.6%, and the 30-year at a multi-decade high above 5%. So what Treasury Secretary Scott Bessent has done is lean unusually hard on the cheaper rate today to finance a roughly $2 trillion annual deficit. That holds down reported borrowing costs but leaves the government more exposed to inflation and rising rates. 

The committee’s own minutes hint at the strain: rising interest costs drove the biggest jump in Treasury outlays this year, up $120 billion. The government’s total debt on interest alone now runs over $1 trillion annually, more than the United States spends on national defense. 

That worries Jon Hilsenrath, the veteran Federal Reserve watcher who spent decades at The Wall Street Journal and now runs his own advisory firm, Serpa Pinto Advisory.

“If there are cracks that show up in the financial system over the next few years, I’ve been expecting them to show up in Treasury debt,” he said in an interview. “If you look at any serious financial crisis, all you’ve got to do is follow the debt.” In 2008, that meant mortgages, but today, he argues, “all the growth has been in federal debt.”

The even bigger problem, Hilsenrath says, is a collision taking shape with the Treasury and the Fed. Just as Treasury is likely forced back toward longer-term bonds, the Fed under new Chair Kevin Warsh is moving to shrink its own balance sheet. The TBAC minutes note dealers expect the Fed’s holdings to drift toward shorter maturities and more bills—and Hilsenrath says a Warsh-appointed new Fed committee, due to report on the balance sheet in December, will almost certainly conclude the Fed is overstocked on long-term Treasuries and must wind them down. So that would mean two waves of long-term supply, converging, with fewer buyers.

“It always comes back to fundamentals,” Hilsenrath said. “Trump and a new Congress came into power and chose not to do anything about the deficit.”

The strategy, to be clear, didn’t start with Bessent. It was Janet Yellen, his predecessor, who first leaned hard on short-term bills to help fund the deficit, and at the time, Bessent was among her sharpest critics. In 2024 he supported and amplified an influential analysis by economists Stephen Miran and Nouriel Roubini that accused Yellen’s Treasury of “activist Treasury issuance”: flooding the market with bills to hold down long-term yields and flatter the economy ahead of the election. Now Bessent occupies her chair and is doing much the same thing, while and Miran himself works inside the Trump administration.

For most Americans, the abstraction lands in a concrete place: mortgage rates, which are benchmarked to Treasury yields and sit above 6% while much of the developed world pays closer to something like 4%. Hilsenrath calls Treasury debt “the collateral of last resort in the global financial system,” the asset on which nearly everything else is priced. Foreign holders like Japan and China have been slowly diversifying into gold rather than dumping bonds or fully “selling America.” he noted—which buys Washington politicians time but keeps deferring the problem.

“We are slowly boiling ourselves like a frog,” Hilsenrath said.