TLDR
- US net interest reached about $623 billion in the first half of fiscal 2025.
- Gross interest over the last 12 months is running near $1.3 trillion.
- Interest is now the second-largest federal spending category after Social Security.
- Net interest spending is running above annual US defense spending levels.
- About $9 trillion to $10 trillion in Treasury debt matures in 2025.
US debt interest hit a record high in fiscal 2025 as federal borrowing costs kept rising. The increase came as older debt rolled into higher-rate securities. In the first six months of fiscal 2025, net interest expense reached about $623 billion. That was up 7% from a year earlier. Over the last 12 months, gross interest expense ran near $1.3 trillion. Full-year net interest for fiscal 2025 is projected near $970 billion to $1 trillion.
Interest Costs Move Above Defense Spending
Interest is now the second-largest federal spending category, based on the figures provided. Only Social Security remains larger, at about $1.6 trillion. Interest spending is also running above defense spending, which is near $900 billion. The gap has widened as Treasury debt issued at very low rates matured.
Much of that debt came from 2020 and 2021, when short-term funding costs were low. As those securities roll over, the government must refinance them at much higher rates. This shift has changed the budget picture. The rise in interest costs is not tied only to new spending.
It also reflects old debt being refinanced at current yields. That process has pushed debt service costs higher even without a sharp drop in economic activity. The figures also show that interest spending is now above some major health spending totals. That places debt service near the center of the federal budget debate. It also adds pressure as annual deficits remain large.
Treasury Faces a Large Refinancing Wave
A large amount of Treasury debt matures in 2025. The total is estimated at about $9 trillion to $10 trillion. That means a large share of outstanding debt must be refinanced within a short period. When debt matures, the Treasury replaces it with new securities.
If market yields are higher, the new borrowing costs more. That is the key reason interest expenses keep rising. The rollover effect has become a major driver of federal borrowing costs. The budget effect depends on where yields stay during refinancing. The prompt states that CBO projected this year using a 3.85% average for the 10-year yield.
Market yields have been running above 4.3%, based on the same figures. The same estimates say every 100 basis points above projection adds about $3.2 trillion in interest over a decade. That means higher yields do more than tighten credit conditions. They also raise the federal deficit through larger debt service bills.
Higher Rates Deepen the Budget Strain
The federal debt total is now near $39 trillion, based on the figures supplied. With that debt load, even small changes in rates can lift annual interest costs. That has made the interest line one of the fastest-growing parts of the budget.
Interest costs have also reached about 3.2% of GDP, according to the figures in the prompt. That is the highest share since 1991. At the same time, the annual deficit is estimated near $1.8 trillion and remains elevated.
These numbers show why investors are watching Treasury auctions, long-term yields, and refinancing needs closely. They also explain why debt service has become a larger budget issue. As more low-rate debt matures, the cost of carrying federal debt keeps moving higher.
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