The U.S. just put its entire budget on a short term rate roller coaster.

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The US government has shifted to financing itself almost entirely through short term Treasury Bills that need to be refinanced every few months, rather than locking in longer term debt.

Over the last 12 months, they’ve issued a record $25.4 trillion in T-Bills which now represent about 70% of all Treasury issuance, up dramatically from 41.8% back in November 2015.

This means the government has chosen the financial equivalent of an adjustable rate mortgage, where your payment changes based on market conditions.

The Fed is now in a cutting cycle heading into December 2026, which initially sounds good for the government’s borrowing costs, but it actually exposes a dangerous vulnerability in this financing strategy.

As the Fed cuts rates over the coming months and into 2026, short-term rates will fall, which means the government’s refinancing costs drop in the near term.

This provides temporary relief and makes the T-Bill strategy look smart for a brief window.

However, the real risk emerges if the Fed cuts too aggressively or if growth weakens faster than expected, forcing even deeper rate cuts.

The longer the Fed stays in a cutting cycle, the more the market starts pricing in economic weakness, which could reignite inflation concerns down the line.

If inflation resurges while the government is locked into this short term financing structure, the Fed would be forced to reverse course and hike rates again, creating a nasty surprise for borrowing costs.

The government essentially has no buffer because they’ve committed to constantly rolling over debt at whatever the current rate happens to be.

The US debt crisis is entering uncharted territory:

The US Treasury has issued a record $25.4 trillion in T-Bills over the last 12 months, lifting total Treasury issuance to a record $36.6 trillion.

This means T-Bills now reflect 69.4% of all Treasury issuance, near an all-time high.

The percentage has risen +27.6 points since the November 2015 low.

In other words, the US government is increasingly financing its long-term obligations with debt that matures in just a few months.

As a consequence, interest expense on public debt now moves nearly in lockstep with the Fed’s policy rate.

If inflation resurges and the Fed is forced to raise rates again, interest costs will climb to unprecedented levels.

The US debt crisis is intensifying.