US Deficit Reaches 1.99 Trillion Dollars as Foreign Net Buying Hits 300.7 Billion in August

By The Edge Research Team

The US federal government closed fiscal year 2026 on 30 September with a deficit of 1,992.5 billion dollars, 217.1 billion dollars or 12.2 percent wider than the 1,775.4 billion of fiscal 2025, according to the Monthly Treasury Statement published on 16 October by the Bureau of the Fiscal Service. Outlays grew 5.5 percent to 7,395.8 billion dollars while receipts rose 3.2 percent to 5,403.3 billion, on our calculation from the statement’s totals. The 385.8 billion dollar rise in spending was 2.29 times the 168.7 billion added on the revenue side. The year ends near 2 trillion dollars, 7.5 billion short of that mark.

The share of federal spending not covered by revenue rose to 26.9 percent from 25.3 percent a year earlier, on our calculation. The shortfall remains well below the 3,131.9 billion dollars of fiscal 2020.

September decided the year

After 11 months the two fiscal years were almost level. Through August, the fiscal 2026 deficit stood at 1,965.6 billion dollars, 7.7 billion smaller than the 1,973.3 billion for the same 11 months of fiscal 2025, on our calculation from the monthly lines. The entire annual widening came in the final month. September 2026 closed with a deficit of 26.9 billion dollars, against a surplus of 197.9 billion in September 2025, a swing of 224.8 billion.

September receipts were not the problem: they rose 2.6 percent to 557.9 billion dollars. Outlays of 584.8 billion were 69.1 percent above the 345.7 billion recorded in September 2025, which was the lowest monthly outlay figure of fiscal 2025 by more than 150 billion dollars. The statement notes that outlays for veterans benefit payments shifted from 1 September 2026 to August 2026, which lowers the September 2026 figure and raises August’s, on our reading, so it does not account for the September jump. The statement offers no reason for the low September 2025 base.

The monthly profile changed too. Fiscal 2026 had one surplus month, April at 215.0 billion dollars, where fiscal 2025 had three: April, June and September. July 2026 carried the largest monthly deficit of the year at 432.3 billion.

US federal budget, fiscal 2026 against fiscal 2025

Fiscal years run October to September. A negative September balance is a deficit and a positive one a surplus. Changes and the share of outlays are our calculation from the published totals.

Income tax carries receipts as interest outpaces defence

Individual income taxes did the heavy lifting on revenue. They rose 189.5 billion dollars, or 7.1 percent, to 2,845.5 billion, an increase larger than the 168.7 billion rise in total receipts: on our calculation, 112.3 percent of the revenue gain. The gain more than offset a 70.7 billion dollar fall in corporation income taxes, which dropped 15.6 percent to 381.4 billion. Individual income taxes now account for 52.7 percent of federal receipts, up from 50.7 percent, on our calculation.

Gross customs receipts climbed 57.1 percent to 317.8 billion dollars, but refunds reached 144.6 billion against 7.5 billion a year earlier, equal to 45.5 percent of the gross collected, on our calculation. Net customs receipts therefore came to 173.2 billion, 11.1 percent below fiscal 2025’s 194.9 billion. The statement reports the refunds without explaining them.

On the spending side, gross interest on Treasury debt securities rose 144.3 billion dollars, or 11.9 percent, to 1,360.0 billion. That single line accounts for 37.4 percent of the 385.8 billion increase in total outlays, on our calculation, and it equals 25.2 percent of all federal receipts, up from 23.2 percent. In the statement’s table of outlays by function, net interest was 1,051.8 billion dollars, up 8.4 percent from 970.4 billion, on our calculation. The statement separately records 217.7 billion dollars of interest received by federal trust funds, up from 187.5 billion, so the gross line is larger than the interest paid to holders outside the government.

Selected receipts and outlays, fiscal years

Receipts are net of refunds. Gross customs receipts were 317.8 billion dollars in fiscal 2026, with 144.6 billion of refunds. Changes are our calculation.

Financing kept pace with the gap. Debt owed to the public rose 2,147.2 billion dollars over the year to 32,425.0 billion at 30 September, up 7.1 percent from the start of the fiscal year and equal to 107.8 percent of the deficit, on our calculation. Part of the extra borrowing went into cash: the government’s operating balance at the Federal Reserve rose 93.2 billion to 984.0 billion. Total Treasury securities outstanding stood at 40,171.8 billion dollars at the end of September.

Foreign buyers add 300.7 billion dollars in August

Treasury International Capital data released the same day showed foreign residents bought a net 300.7 billion dollars of US long-term securities in August, up from 40.6 billion in July. Including all other portfolio and banking flows, the total net inflow was 199.8 billion.

Over the 12 months to August, foreigners bought a net 1,875.9 billion dollars of US long-term securities, up 21.1 percent from 1,549.5 billion a year earlier. Equities took 1,009.6 billion dollars of that 12 month total, or 53.8 percent, and corporate bonds 464.1 billion. Net purchases of Treasury bonds and notes by private and official buyers combined were 306.4 billion, 16.3 percent of the total and 36.8 percent less than the 484.8 billion of the previous 12 months. August itself was better for government paper: foreigners added a net 109.0 billion of Treasury bonds and notes, though they also cut their Treasury bill holdings by 47.8 billion.

Foreign purchases of US securities and total net inflow ($bn)

Not seasonally adjusted. Treasury bonds and notes and equities combine private and official purchases, our calculation from the published lines. Total net inflow includes all other portfolio and banking flows.

Britain closes in on Japan as Gulf holders add

Foreign holdings of US Treasury securities rose 83.3 billion dollars in August to 9,331.7 billion, a gain of 0.9 percent on the month and 0.9 percent on the year, on our calculation. Japan remained the largest holder at 1,068.3 billion, but it cut 35.6 billion in August and stands 115.6 billion, or 9.8 percent, below a year earlier. The United Kingdom added 108.2 billion over the year, a rise of 12.0 percent to 1,009.5 billion, leaving it 58.8 billion behind Japan. Mainland China’s holdings fell 27.3 billion in the month and 109.0 billion over the year, a drop of 15.6 percent to 590.7 billion. Official institutions own 40.2 percent of the foreign total, down from 42.4 percent a year earlier.

Gulf holders added. Kuwait’s holdings reached 73.0 billion dollars in August, up 23.2 percent from a year earlier and 5.4 percent from July, the highest monthly figure in the Treasury’s country table, which runs from January 2020. Almost all of it, 97.0 percent, is in long-term securities. The UAE’s holdings rose 6.8 percent over the year and 5.4 percent in August to 116.1 billion. Saudi Arabia’s reached 141.2 billion, up 6.2 percent on the year, though 1.2 billion below July. Together the three own 330.3 billion dollars of Treasury securities, 9.8 percent more than a year earlier, and their combined gain of 29.4 billion equals 35.6 percent of the rise in all foreign holdings over the period, on our calculation. The release cautions that custodial data cannot attribute holdings of US securities to individual countries with complete accuracy.

Selected foreign holders of US Treasury securities, end of August ($bn)

Kuwait does not appear in the major holders list and is taken from the all countries table. Changes are our calculation from the published holdings.

Why it matters: The United States ended fiscal 2026 spending 1.37 dollars for every dollar it collected, and gross interest on Treasury debt, up 11.9 percent, equals 25.2 percent of federal revenue. Revenue growth leaned heavily on individual income taxes, while corporate receipts fell and customs refunds equalled 45.5 percent of gross customs receipts. A deficit of 1,992.5 billion dollars has to be met with new borrowing, so foreign demand for US securities bears on how that borrowing is absorbed. That appetite was strong in August and over the past year, but it went mainly to US shares and corporate bonds rather than to Treasury notes and bonds.

Outlook: The monthly budget statement for October, the first month of fiscal 2027, is due on 12 November and will show whether the September jump in outlays carries into the new year. The next foreign capital release, covering September, is scheduled for 18 November. For Gulf investors, it will show whether Kuwait, the UAE and Saudi Arabia extend the gains in their Treasury holdings that took their combined position to 330.3 billion dollars in August.

Sources: US Department of the Treasury, Bureau of the Fiscal Service, The Edge.

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