US Debt Surges to $40T as Congress Eyes Another Stopgap—Can Markets Survive the Fiscal Tug-of-War?

Rebecca Patterson, a senior fellow at the Council on Foreign Relations and former Bridgewater Associates chief investment strategist, argues that long-term bond yields can be lowered through four levers: reopening the Strait of Hormuz, tackling the fiscal deficit, using Treasury intervention, or accepting an unwanted economic slowdown. Her framing links geopolitics and macro-finance by implying that energy-market stability and fiscal credibility both feed directly into the term premium investors demand. The article’s core message is that the policy mix is constrained: each option carries political and economic costs, and markets will price those trade-offs in real time. In parallel, the broader policy debate is being shaped by the immediate need to keep the federal government funded. On Capitol Hill, Rep. Tim Moore (R-NC) says the votes exist to pass a continuing resolution that would keep the government open through mid-December, while also pointing to the Senate’s difficulty reaching the 60-vote threshold for advancing legislation. That dynamic helps explain why stopgap bills keep returning as the default governance mechanism, effectively postponing hard budget choices. Another piece notes that the national debt has hit $40 trillion, yet the debt is not a central issue in the midterms, suggesting a political mismatch between fiscal reality and electoral salience. A separate report highlights that the House is reconvening with a stopgap spending bill on the agenda, reinforcing that near-term funding decisions are likely to dominate the policy calendar. For markets, the combination of rising debt, recurring stopgaps, and uncertainty about fiscal direction is a direct input into Treasury yield expectations and risk premia. If Patterson’s deficit-focused pathway is not credibly advanced, investors may demand a higher term premium, pressuring duration-sensitive assets such as long-dated Treasuries and rate-sensitive equities. The mention of Treasury intervention signals that policymakers may try to manage yield volatility, but such actions can also be interpreted as a substitute for fiscal reform, potentially limiting credibility gains. Meanwhile, the Hormuz reference matters for energy-linked inflation expectations: any perceived risk to supply routes can lift oil prices, which then feeds into inflation breakevens and nominal yields. What to watch next is whether Congress can convert the stated “votes are there” claim into an actual CR through mid-December without triggering a funding cliff that forces another round of brinkmanship. Key indicators include the Senate’s ability to coalesce around any broader package beyond the stopgap, and whether fiscal deficit measures appear in negotiations rather than being deferred again. On the market side, watch the 10-year Treasury yield, the slope of the curve, and inflation breakevens for signs that investors are re-pricing fiscal risk or energy-supply risk. Finally, the trigger point for escalation is a failure to pass the CR on time, which would raise the probability of renewed shutdown threats and intensify volatility in rates, credit spreads, and energy-sensitive inflation expectations.

Geopolitical Implications

• 01

  Middle East energy chokepoints can transmit into U.S. bond-market pricing through inflation expectations and risk premia.

• 02

  Domestic U.S. fiscal governance dysfunction can heighten global investor sensitivity to U.S. sovereign risk.

• 03

  Potential reliance on Treasury intervention as a substitute for fiscal reform could affect perceptions of U.S. policy credibility.

Key Signals

• —Whether the Senate can move beyond stopgap dynamics and coalesce on broader fiscal measures.
• —Timing and vote count for the CR aimed at funding through mid-December.
• —Moves in 10-year yields, the curve slope, and inflation breakevens as term premium and inflation expectations reprice.
• —Oil price reaction to any renewed Hormuz disruption risk narrative.