The gross national debt of the United States surpassed $39 trillion in March 2026, climbing from $38 trillion in roughly five months and from $34.5 trillion just two years earlier, Fox Business reported. That pace of borrowing should alarm anyone with a mortgage, a credit card, or a retirement account.
In a new episode of Schwab’s On Investing podcast, Chief Investment Strategist Liz Ann Sonders and Head of Fixed Income Research Collin Martin argue that the growing fiscal burden is one of the forces shaping markets right now, even if it rarely triggers a single dramatic headline, Schwab noted.
Schwab’s strategists say the $39 trillion debt is reshaping the bond market
Sonders and Martin framed the national debt not as an abstract government accounting exercise, but as a force that directly influences the yields investors earn, the mortgage rates they pay, and the returns they can expect from bonds.
The Congressional Budget Office projects annual deficits will average more than $2 trillion through 2036, pushing publicly held debt toward $56 trillion and roughly 120% of GDP. That trajectory would surpass the post-World War II record of 106% set in 1946.
Martin emphasized that the flood of new Treasury issuance needed to finance those deficits keeps long-term yields elevated, even when the Fed cuts short-term rates. The firm projected that 10-year Treasury yields may struggle to fall below 3.75% and could periodically push back toward 4.5%, Schwab’s fixed income research team indicated.
For homeowners and borrowers, that translates into persistently higher mortgage rates, elevated credit card interest, and more expensive auto loans. Interest payments alone are now the fastest-growing line item in the federal budget.
Treasury demand remains solid, but Schwab warns complacency has limits
One of the most frequent questions Sonders and Martin fielded from investors concerned whether surging debt would trigger a “tipping point” for demand in Treasuries or a collapse of the U.S. dollar. Their answer was nuanced: historical data does not support the idea that a sudden cliff is imminent, and demand at Treasury auctions has broadly remained within normal ranges, Schwab confirmed.
“My fear is that we will probably not make these needed cuts due to political reasons, and will have even more debt and debt service encroaching on our spending that will ultimately lead to a serious supply-demand problem,” Ray Dalio, Founder and Co-Chief Investment Officer of Bridgewater Associates, told Fox Business.
A series of weak Treasury auctions in March 2026 rattled bond traders, with primary dealers absorbing roughly 24% of a two-year note auction, about double the usual share, the Bipartisan Policy Center reported. Five-year and seven-year securities also saw weaker-than-expected demand.
While these auctions alone do not constitute a crisis, they reflect growing unease among buyers who must absorb an ever-larger supply of government paper. Since fiscal year 2014, Treasury has increased the size and frequency of its debt auctions to finance persistent deficits and refinance maturing obligations.
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The Federal Reserve’s inflation fight limits its ability to cushion borrowers
Sonders and Martin also explored how inflation dynamics constrain the Fed’s options. The core PCE price index, the central bank’s preferred inflation gauge, rose 0.4% month over month in February 2026, sustaining a 10-month high and sitting at 3% year over year, well above the 2% target, the Bureau of Economic Analysis reported.
That sticky inflation reading makes it difficult for the Fed to cut rates aggressively, even as the labor market softens and consumers show signs of strain. Consumer sentiment reflects that squeeze. The University of Michigan’s final April 2026 reading came in at 49.8, the lowest level on records stretching back to 1952.
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Year-ahead inflation expectations surged to 4.7% from 3.8% in March, the largest one-month jump since April 2025, when sweeping tariff announcements roiled markets, CNN reported. Higher energy costs from the Middle East conflict, combined with lingering post-pandemic price pressures, are compounding the burden on household budgets.
That tension between inflation and growth puts the Fed in a bind that directly affects you. If the central bank holds rates steady to fight prices, borrowing costs stay elevated. If it cuts prematurely and inflation reignites, long-term bond yields could spike further as investors demand higher compensation, driving mortgage rates and credit card APRs even higher.
Kevin Warsh’s confirmation hearing signals potential changes at the Fed
Sonders and Martin flagged the Warsh confirmation hearings as a significant event for investors to watch. Warsh, Trump’s nominee to succeed Jerome Powell as Fed chair, testified before the Senate Banking Committee on April 21 and laid out a vision he described as “regime change” at the central bank.
He argued that the Fed’s $6.7 trillion balance sheet has distorted markets and contributed to wealth inequality, and he called for narrowing the Fed’s footprint in the economy, CNBC reported. Warsh also criticized the Fed’s forward guidance practices and declined to commit to holding press conferences after every policy meeting, a departure from the current approach under Powell.
He told senators that the president never asked him to commit to lowering interest rates and that he would act independently, CNN confirmed. However, his confirmation remains stalled because Republican Sen. Thom Tillis of North Carolina is blocking a committee vote until the Justice Department drops its investigation into Powell and the Fed headquarters renovation.
Schwab’s strategists say the 60-40 portfolio needs a rethink in a high-debt world
Sonders and Martin revisited one of the most debated strategies in personal investing: the classic 60% stocks, 40% bonds allocation. Their argument was that shifting inflation dynamics and the end of what economists call the “Great Moderation” require more nuanced diversification than a simple stock-bond split would provide, as detailed in the Schwab podcast.
When inflation is low and stable, bonds tend to rally when stocks fall, providing a natural hedge. In today’s environment, with goods prices recently overtaking services as the dominant inflationary force, that correlation has become less reliable, Schwab’s market update noted.
Schwab’s message to investors is clear
Sonders and Martin closed their discussion with a reminder that investors should exercise caution around headline payroll numbers, which are frequently revised significantly after their initial release. They also stated that the Fed is currently prioritizing inflation containment over employment support, as reported by Schwab.
With core PCE data and consumer sentiment readings both flashing warning signals, the months ahead could test the assumption that Treasuries remain an unshakable safe haven. Schwab’s strategists are urging investors to take it seriously, not because a crisis is imminent, but because the cost of ignoring it compounds with every passing quarter.
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