Updated Sun, Jun 8, 2025, 8:00 AM6 min read

For decades, investors thought the risk of the US government defaulting on its debt was essentially zero. It was nice while it lasted.

There’s still a low chance the US government will fail to pay principal or interest on nearly $30 trillion worth of Treasury securities circulating around the world. But global investors think US debt is getting riskier, and they also think US policymakers in Congress and the Trump administration are doing nothing about it.

That rising risk is likely pushing interest costs higher for every American borrowing to finance a home, a car, or a business investment.

A new paper published by the Federal Reserve Bank of Chicago uses an arcane security known as a credit default swap, or CDS, to estimate the risk of the US Treasury defaulting on a payment. The analysis highlights not just the damage caused by 15 years of political squabbling in Congress over budget issues but also the startling decline in market assessments of US creditworthiness.

Congress may soon make this worse by passing a tax-cut bill that makes America’s fiscal position even shakier.

There are two basic market concerns with America’s creditworthiness. One is the sheer amount of borrowing the US government must do to finance annual deficits that are now routinely close to $2 trillion. The total national debt is $36.2 trillion, and the amount of US debt in circulation now equals about 100% of GDP, a record for peacetime.

That’s only going higher.

The other issue is the US debt ceiling, which puts a limit on the total amount of federal borrowing the Treasury is allowed to do. The debt limit itself isn’t problematic. But Congress’s handling of it is. Three times — in 2011, 2013, and 2023 — Congress has refused to raise the borrowing limit until the Treasury Department was dangerously close to running out of money. If the Treasury missed even a single payment it owed, it would constitute a default and roil the global trillion-dollar market for Treasury securities, the world’s most widely traded assets.

In January, the Treasury hit the debt limit once again. Since then, it has been relying on “extraordinary measures” — basically, moving money around — to pay its bills. Congress must soon raise the debt limit once again, with the Treasury likely to run out of maneuvering room sometime between mid and late summer.

Credit-default swaps are private contracts that work like an insurance policy, with one party agreeing to cover losses for a second party if the issuer of a given security defaults. The market for CDS contracts on government debt has been most active during debt crises in countries such as Argentina, Brazil, Mexico, Russia, Turkey, Greece, and Italy. The market for CDSs guaranteeing US debt is often dormant. But it springs to life around the time that the US debt ceiling needs to be raised, because Congress could trigger a default by waiting too long.