The US Fiscal Cliff: $36T Debt, Rising Yields, and the Squeeze on LBO Financing
bIAnk AI Research · February 2026 · 8 min
US federal debt has surpassed $36 trillion, pushing long-term yields higher and creating a structural headwind for leveraged buyout financing and deal multiples.
The US national debt crossed the $36 trillion threshold in early 2026, with interest payments now exceeding $1.1 trillion annually—surpassing defense spending for the first time in history. This fiscal trajectory is fundamentally altering the fixed-income landscape.
The 10-year Treasury yield has stubbornly remained above 4.5%, reflecting both fiscal sustainability concerns and term premium re-pricing. For leveraged buyout sponsors, this translates to all-in senior secured costs above 8%, compared to sub-5% during the ZIRP era.
The Congressional Budget Office projects continued deficits exceeding 6% of GDP through 2030, absent significant policy changes. Bond vigilantes have returned, demanding higher compensation for duration risk and putting pressure on long-term financing structures.
For M&A practitioners, the higher rate environment is compressing buyout multiples. The average LBO purchase multiple has declined from 11.5x EBITDA in 2021 to approximately 9.2x in early 2026, as higher financing costs reduce the leverage capacity of financial sponsors.
Ironically, this environment is creating opportunities for well-capitalized acquirers. Strategic buyers with strong balance sheets and low cost of capital are outcompeting PE sponsors in competitive processes, reversing a decade-long trend of financial buyer dominance.
Key takeaways
- US debt surpasses $36T with annual interest payments exceeding $1.1T
- 10-year Treasury yield above 4.5% squeezing leveraged buyout economics
- Average LBO multiples compressed from 11.5x to 9.2x EBITDA since 2021
- Strategic buyers gaining competitive edge over financial sponsors in auctions