The fiscal year of 2027 is not off to a great start for the U.S. Treasury’s pocket book.
The Congressional Budget Office (CBO) just released its October budget report, the first month of the 2027 fiscal calendar year.
The strictly nonpartisan CBO reported that in October 2026, it estimated the federal government incurred a deficit of $409 billion—more than $100 billion a week. This is $125 billion more than the shortfall recorded last October.
Revenues were $36 billion lower, and outlays were $89 billion higher than the same month last year, according to the CBO. The report suggested October’s federal deficit was that much higher due to shifts in the timing of certain federal payments that otherwise would have been made on November 1 (that date fell on a weekend in 2025 and 2026, therefore pushing those payments into October of each year).
This comes after a summer of debt reshuffling in the U.S. Treasury, with fiscal hawks questioning whether Treasury Secretary Scott Bessent was moving deckchairs on the Titanic, rather than meaningfully improving the macroeconomic picture.
Bessent described this summer’s actions as a “Treasury twist,” a reference to policymaker action in which longer-dated Treasuries are bought and paid for by issuing shorter-term debt. The strategy has not been confirmed verbatim by the Treasury, but Bessent himself has indicated the scheme worked by buying back more expensive, long-term debt (in which yields, and hence interest, are higher) in lieu of cheaper, short-term debt.
The move did not impress markets. JPMorgan’s co-head of global fundamental research, James Sullivan, described it as “paying your mortgage with your credit card. It can work for a while, but eventually the mismatch starts to become more obvious.”
Context has since achieved the desired effect: A range of factors (including tough Fed talk on inflation and the recent AI rout) have brought down longer-dated yields and smoothed volatility.
The fiscal path
While this has made government borrowing relatively cheaper in the long term (interest rates are tied to long-dated Treasury yields), it will do little to reassure debt hawks the U.S. fiscal trajectory is on a sustainable path.
In its budget review, the CBO showed that for the fiscal year of 2026, the deficit was at 6.2% of the nation’s GDP, up from 5.8% a year prior. This percentage is greater than the 50-year average of 3.8%, and has only previously been matched or exceeded eight times since 1946: from 2009 through 2012 and in 2020, 2021, 2023, and 2024.
The total deficit for the year was $1.9 trillion, the CBO added, with $1.14 trillion spent on interest on the public debt.
Government income was up for the year to $5.4 trillion, up $169 billion in the 2025 fiscal year, thanks, in large part, to increases in collections of individual income and payroll taxes. But, on the contrary, total outlays increased by $217 billion—most of which came from an uptick in Social Security, Medicare, and Medicaid.
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