Oil, interest rates and Trump/GOP borrowing all going up in the US

Remember about a week ago when oil markets were plummeting and the Trump Administration was saying a peace deal with Iran was on the way? I'm talking about the most recent time, not the 15 other times we’ve heard Peace is At Hand in the last few months.

Well, that hope is over. Again. And oil is back on the rise....now with a new lack of availability!

Oil prices jumped on Monday as hopes for a Washington-Tehran deal over the Strait of Hormuz faded and the US's Strategic Petroleum Reserve fell below 300 million barrels, hovering at its lowest level since the 1980s.

The SPR fell by 6.1 million barrels in August, reaching its lowest point since 1983, with inventories at 298.7 million barrels, according to data from the Department of Energy.

The US, like other countries, has been releasing stored crude to make up for supply disruptions sparked by the war in the Middle East, with the Trump administration ordering the release of 172 million barrels in March to steady global markets.

Oil ended up rising nearly $4 a barrel on Monday, finishing above $82 a barrel for the first time since the end of July. I'll add that the draw of 6.1 million barrels only covers the first week of the month, from Saturday, August 1 through Friday, August 7, and is the largest one-week drawdown in more than a month.

Know what else is back on the rise? Long-term bond yields, which touched 4.7% for the 10-year bond for US Treasuries on Monday and 5.25% for the 30-year bond. Check out the trend since bombs started falling on Iran at the end of February.

As much as Fed Chair and Trump confidant Kevin Warsh may want to avoid rate hikes for the benchmark Fed Funds rate, the US bond market is raising rates via their open market trades.

As an effect of the rising rates, we’ve seen expenses to pay off that US debt rise more in Federal Fiscal Year 2026 exceed the increases in either Medicare, Medicaid or Social Security. That number comes from the Congressional Budget Office’s budget review for July, which came out on Monday.

Spending for Social Security benefits rose by $70 billion (or 5 percent) because of increases in average benefits and in the number of beneficiaries. That increase would have been greater but for a significant set of onetime retroactive payments that began in March 2025 and stemmed from the Social Security Fairness Act of 2023, which was enacted in January 2025.

■ Medicare outlays increased by $66 billion (or 8 percent) because of increased enrollment and higher payment rates for services.

■ Medicaid outlays increased by $45 billion (or 8 percent) largely because of rising costs per enrollee….

■ Outlays for net interest on the public debt rose by $117 billion (or 14 percent) because the debt was larger than it was in the first 10 months of fiscal year 2025 and because of higher long-term interest rates. Declines in short-term rates partially mitigated the overall rise in interest payments.

Auctions of new debt are slated to be coming at a faster clip in the coming months, as the US Treasury has now upped its estimate of borrowing needed for the July to September quarter, with nearly ¾ of a trillion dollars now projected to be pushed out.

During the July–September 2026 quarter, Treasury expects to borrow $739 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $950 billion. The borrowing estimate is $68 billion higher than announced in May 2026, primarily due to lower projected net cash flows, partially offset by the higher-than-assumed beginning-of-quarter cash balance. Excluding the higher-than-assumed beginning-of-quarter cash balance, the current quarter borrowing estimate is $87 billion higher than announced in May.

That is a sizable increase in volume of borrowing compared to the 4th quarter of 2025 ($550 billion) and 1st three months of 2026 ($577 billion).

Another item that worth noting from the Treasury’s announcement is that they should stay steady in how much debt they are sending out at one time, with the exception of less borrowing in September as a large amount of taxes are paid, and more needed starting in the month after that.

Based on current forecasts, Treasury expects to maintain current auction sizes in benchmark bills in the coming weeks and anticipates potentially issuing a short-dated CMB to meet its cash management needs around the end of August. Given projections for receipts associated with the mid-September corporate and non-withheld tax date, Treasury expects to implement reductions to shorter-dated bill auction sizes during the month of September. In October, Treasury anticipates increasing auction sizes across the bill curve based on expected seasonal fiscal outflows. As always, Treasury will continue to evaluate near-term borrowing needs and assess additional adjustments to bill auction sizes as appropriate.

Another batch of 10-year and 30-year bonds will have their auctions this week, and that will be something that many look to in order to see if this Summer's rise in longer term rates will continue, and with it, higher costs in a county that is nearly at $40 trillion in overall debt.

Doesn't seem like any of this oil, interest rate or debt news is going in the right direction, does it?