Deficit is the largest since the COVID era; is the US interest expense exceeding $1 trillion a sign of persistently high interest rates? New NISA
Information as of 12:00 PM on October 18, 2026.
The US fiscal deficit for fiscal year 2026 (October 2025 to September 2026) reached $1.9924 trillion (approximately 315 trillion yen at 158 yen to the dollar), an increase of 12.2% from the previous fiscal year, marking its first expansion in two years. According to figures released by the US Department of the Treasury on October 16 (US time), net interest payments on national debt reached a record high of $1.05 trillion, 8% more than the previous year. As interest payments rise and the deficit widens, the government must issue more national debt, which is one factor keeping the US 10-year Treasury yield in the 5% range. For those investing in the S&P 500 or All Country World Index (ACWI) through the new NISA, this is a fundamental issue underlying the ‘long-term interest rates’ that dictate whether stocks are overvalued or undervalued.
Chapter 1: What happened: The US fiscal deficit is $1.9924 trillion, the largest in five years
The fiscal deficit is the amount by which a country’s annual expenditures exceed its revenues, such as taxes. The figures for fiscal year 2026, according to the US Treasury’s Monthly Treasury Statement, are as follows:
・Fiscal deficit: $1.9924 trillion (previous year $1.775 trillion, up 12.2%)
・Revenue: $5.403 trillion (up 3%)
・Outlays: $7.396 trillion (up 6%)
・Net interest on national debt: $1.05 trillion (previous year $970 billion, up 8%)
The amount of the deficit is the largest since the 2020 and 2021 fiscal years, when spending ballooned due to COVID-19 countermeasures. Because the deficit had decreased slightly in the previous fiscal year, this marks the first expansion in two years.
One reason for the lack of growth in revenue is tariffs. According to CBO estimates, revenue from tariffs and similar sources was $172 billion, an 11% decrease from the previous year. This is because the US Supreme Court ruled emergency tariffs illegal, and refunds began around May. Corporate tax revenue also fell by 16%.
Note that in estimates released by the CBO on October 8, the deficit is nearly the same at $1.993 trillion, but interest payments (net interest on national debt) are larger than the Treasury’s figures at $1.143 trillion, an 11% increase. This is due to differences in the scope of aggregation, but in either case, the points that it is a ‘record high’ and ‘growing faster than outlays’ remain unchanged.
Chapter 2: How the market reacted: The market is closed on Sunday
In the week of the announcement, the US Treasury market was driven primarily by a trend of buying government bonds due to concerns over the debt of AI-related companies. The US 10-year Treasury yield ended the week at around 5.09%. Since the fiscal figures were largely known from prior CBO estimates, it is difficult to say that the announcement itself caused interest rates to move significantly.
Herein lies the question of this article. With deficits and interest payments increasing this much, why have long-term interest rates stopped at around 5% instead of ‘soaring’? And how does this burden affect stocks and investment plans?
Chapter 3: Why this is happening: Interest payments increase with a ‘lag’
The answer is that interest payments do not increase the moment interest rates rise, but rather increase over time as old government bonds are refinanced into new ones.
The average interest rate on national debt paid by the US Treasury is about 3.5%, more than double what it was five years ago. Even so, if a new 10-year government bond were issued now, it would carry a yield of around 5.09%. In other words, as low-interest bonds reach maturity and are refinanced, the average interest rate rises, and interest payments increase further. As interest payments rise, the deficit widens, government bond issuance increases, and higher yields are required to attract buyers—this is the cycle.
According to the author’s calculations, based on Treasury figures, interest payments ($1.05 trillion) account for approximately 19% of revenue ($5.403 trillion), meaning about one-fifth of tax and other income is going toward interest payments. This amounts to about $2.9 billion per day. Furthermore, of the increase in the deficit (approximately $217 billion), the increase in interest payments (approximately $81 billion) accounts for about 40%. If calculated using CBO estimates (deficit increase of $218 billion, interest payment increase of $115 billion), it exceeds 50%.
According to reports, interest payments are already larger than social security and public health insurance for the elderly (Medicare), and exceed defense spending.
Chapter 4: Impact on New NISA and US stocks: What matters is the ‘interest rate floor’
For those investing in the S&P 500 or ACWI through the new NISA, the fiscal deficit does not directly move stock prices, but it acts as a reason why long-term interest rates are unlikely to fall.
・Short-term: These figures are almost the same as prior estimates and are unlikely to be a factor that significantly moves the market at the start of the week.
・Long-term: As long as the deficit continues, government bond issuance will remain high, creating a ‘floor’ that makes it difficult for long-term interest rates to fall. The higher the interest rates, the more likely stocks bought in anticipation of future profits will appear overvalued.
・Exchange rates: If US interest rates remain high, the interest rate gap between Japan and the US will be difficult to narrow, and the dollar-yen rate will likely remain at the weak-yen level of around 158 yen. While this provides support for US stock investment trusts denominated in yen, the downside risk when the yen strengthens also becomes larger.
Here are three themes that are easily affected. The company names mentioned are merely examples and are not recommendations to buy or sell.
・Growth stocks where most of the profits are in the future: These tend to look overvalued when interest rates remain high (e.g., large-cap AI-related stocks).
・Banks: When long-term interest rates remain high, the spread between deposit and lending rates tends to widen (e.g., JPMorgan Chase (JPM)).
・Housing/Real Estate: This is a sector where mortgage rates tend to rise in tandem with long-term interest rates.
Chapter 5: Next figures to check: FOMC and the November government bond issuance plan
How much the weight of fiscal policy will be reflected in interest rates will become clear through the following two upcoming events.
The first is the Federal Open Market Committee (FOMC) meeting to be held on October 27th and 28th. The target range for the policy rate is 3.75–4.00%, and if there is an additional rate hike, interest expenses, which rise with each refinancing, will increase further. The benchmark will be whether the US 10-year Treasury yield exceeds the 5.33% it hit on the 14th or falls below 5.0%.
The second is the government bond issuance plan, which the Treasury Department typically announces in early November. The degree of pressure on long-term interest rates will change depending on whether they increase long-term government bonds or cover the deficit with short-term bonds.
The author has no intention of changing their accumulation settings based on fiscal figures. The persistence of high interest rates is something that will take effect over many years, and I believe the rule of continuing to buy the same amount every month is designed to cope with such long-term trends.
Frequently Asked Questions
Q1. What is the US fiscal deficit for fiscal year 2026?
A. According to the US Treasury Department’s Monthly Treasury Statement, it is $1.9924 trillion. This is a 12.2% increase from the previous fiscal year’s $1.775 trillion, marking an expansion for the first time in two years.
Q2. What is the US government bond interest expense?
A. According to US Treasury Department figures, the interest expense (net) for fiscal year 2026 was a record high of $1.05 trillion. The CBO estimate is $1.143 trillion, but the values differ due to differences in the scope of the aggregation.
Q3. Does the US fiscal deficit have any relation to New NISA accumulation?
A. There is no direct relationship, but if the deficit continues, government bond issuance will increase, making it difficult for long-term interest rates to fall. Since long-term interest rates affect how stocks are viewed as overvalued or undervalued, they form the backdrop for the price movements of the S&P 500 and All Country World Index (Orkan).
Conclusion
The movement on October 15th, when the US 10-year Treasury yield fell to around 5.09% despite strong prices, is summarized in this breaking news report.
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In this note, I select one event every day and briefly summarize its connection to the New NISA and US stocks. Please follow if you like.
This article is for informational purposes only and does not recommend the buying or selling of any specific stocks. Please make your own investment decisions.