The US federal government borrowed $432 billion in July 2026 alone — the largest monthly shortfall on record for the month — pushing fiscal year 2026 borrowing through the first ten months to roughly $1.8 trillion. That already exceeds the entire FY 2025 deficit of about $1.775 trillion, with two months still to go on the fiscal calendar, according to the Treasury’s Monthly Treasury Statement released August 12, 2026 and summarized in the Committee for a Responsible Federal Budget’s readout.
The July shortfall was inflated by two moving pieces the market has been trying to price for months: heavy calendar-shift outlays and a third consecutive month of net-negative customs receipts after the Supreme Court struck down the emergency-tariff regime earlier this year. Adjusted for calendar timing, the July gap was closer to $333 billion — still about 18% wider than the same month a year earlier.
What actually blew out July
On the outlays side, the Treasury reported $766 billion of spending in July, up roughly $137 billion (about 22%) from July 2025. Interest on the debt, Social Security, Medicare, and defense all continued to grind higher, and a handful of scheduled payments landed inside the month rather than at the boundary.
On the receipts side, revenue actually fell year over year to about $334 billion. The biggest single anomaly is the tariff line: the Treasury issued $33.4 billion of tariff refunds in July — down from $49.2 billion in June — leaving net customs receipts at negative $8.55 billion for the month. Those refunds trace directly to the Supreme Court’s decision striking down the sweeping emergency tariffs, forcing the government to hand back duties it had already collected and booked. On a cumulative basis, tariff refunds have now topped $100 billion since the refund program began.
FY 2026 is on pace to beat FY 2025 with two months to spare
The ten-month math is stark. Even before the traditional September-quarter refunds and scheduled interest payments hit, the FY 2026 deficit is already larger than every complete fiscal year on record except the COVID-shock years of 2020 and 2021. CRFB president Maya MacGuineas put it bluntly in the Aug. 12 release: “we’re already $1.8 trillion in the red, suggesting we’re on track to borrow over $2 trillion this fiscal year.”
| Metric | July 2026 | July 2025 | Change |
|---|---|---|---|
| Monthly deficit (unadjusted) | $432B | $291B | +$141B (+48%) |
| Monthly deficit (calendar-adj.) | ~$333B | ~$283B | +$50B (+18%) |
| Outlays | $766B | $629B | +$137B (+22%) |
| Receipts | $334B | $338B | −$4B (−1%) |
| Tariff refunds issued | $33.4B | — | n/a |
| Net customs receipts | −$8.6B | +$7B (approx.) | Large negative swing |
The 12-month picture is worse than the calendar suggests
Zoom out to the trailing twelve months and the number the bond market cares about is $1.9 trillion — roughly 6.1% of GDP, per CRFB’s rolling-deficit blog. Total federal revenue over that twelve-month window came in at $5.4 trillion against $7.3 trillion of spending. A 6-handle deficit-to-GDP ratio outside of a recession or war is historically unusual — the postwar average is closer to 3%.
Gross federal debt, meanwhile, sits at roughly $39 trillion and is closing in on the psychologically important $40 trillion mark, per the Peter G. Peterson Foundation. That is the size figure that drives Treasury issuance calendars — and by extension, the term-premium conversation in the bond market.
What this means for the bond market
The mechanical read is simple: more borrowing means more Treasury supply, and more Treasury supply — all else equal — pushes term premium higher at the long end. That is exactly what the tape has been showing. The 30-year sits at 5.25%, the 10-year at 4.67%, and the 2-year at 4.19%, per real-time Investing.com quotes on August 12, 2026. That works out to a 2s-30s slope of roughly 106 basis points — a bear-steepening pattern that has persisted for months as duration buyers demand more compensation to absorb a growing coupon calendar.
The Treasury’s August refunding announcement earlier this month raised coupon sizes across the curve, and the FY 2026 borrowing math almost guarantees the November refunding does the same. That is a headwind for anyone hoping the long end will rally on the cooler July CPI print of 3.4% — the supply side is pulling the curve the other way.
The tariff wildcard
The tariff refund line is arguably the most under-appreciated fiscal variable of the year. Before the Supreme Court decision, customs receipts were running at record levels — annualized, above $250 billion — and were partially masking the underlying revenue weakness. With refunds now flowing back to importers, that revenue base has effectively collapsed inside a single quarter.
Congress and the administration are working on a replacement framework, but any new tariff structure that survives judicial review will take time to layer in. In the meantime, every month of refunds widens the gap between what the government spends and what it collects. That is a first-order driver of Treasury bill issuance and, once it flows through, of the entire coupon calendar.
What to watch
- August MTS (early September): the first month with a full effect of the new tariff regime (if any) and the pace at which refunds continue.
- Treasury’s November refunding announcement: the vehicle for signaling any further increase in coupon sizes to accommodate the shortfall.
- September Fed meeting: a cooler CPI opens the door to a cut, but the fiscal picture argues for term-premium resilience even if the front end rallies.
- The $40 trillion debt threshold: a psychological marker that could drive political attention and, potentially, a renewed debt-ceiling fight into 2027.
The July MTS is not a one-off datapoint. It is the tenth month in a row where the fiscal trajectory has run above the CBO’s baseline, and it is happening in a labor market that is still expanding, without a recession providing cover. When the next recession does arrive, this is the starting point that the automatic stabilizers will have to build on.
Sources
- CRFB: Treasury Confirms $1.8 Trillion Deficit for First 10 Months of FY 2026 (Aug 12, 2026)
- CRFB: 12-Month Rolling Deficit is $1.9 Trillion in July 2026
- CRFB: CBO Estimates $1.8 Trillion Deficit for First 10 Months of FY 2026
- Reuters via Investing.com: US July deficit tops $432 billion as outlays grow, tariff receipts stay negative
- Yahoo Finance: US sent back $33.4 billion in tariff refunds in July; total payouts surpass $100 billion
- Yahoo Finance: US inflation eases to 3.4% in July
- Investing.com: US 10-Year Treasury Yield
- Investing.com: US 2-Year Treasury Yield
- Peter G. Peterson Foundation: National Debt Clock
Disclosure: This article is for informational purposes only and is not investment advice.