On Friday, the Europe-based credit ratings agency maintained the U.S. sovereign score at AA-, three notches below the top rating and two steps below AA+ grades from rivals Moody’s, Fitch and S&P Global Ratings.

Scope listed what the U.S. still has in its favor: a strong economy, the dollar as the world’s reserve currency, strong institutions like the Federal Reserve, as well as the deepest and most liquid capital markets.

But while Scope kept the U.S. credit outlook at stable, it sees deficits worsening due to the persistence of “structural expenditure pressures” and limited political will for fiscal reform.

At the same time, debt-servicing costs will drive further fiscal deterioration as U.S. primary deficits, or deficits excluding interest payments, will actually remain stable at around 3.5% of GDP, according to Scope.

With the 10-year Treasury yield now at 5.27%, it has already blown past long-term forecasts from the Congressional Budget Office, which saw them at 4.3% from 2028 to 2031 and 4.4% from 2032 to 2036.

The Committee for a Responsible Federal Budget has estimated that if yields stay roughly 1 percentage point above where CBO projected, about $3.5 trillion would be added to the debt over the next decade.

Scope warned that the increasingly heavy interest costs limit the government’s ability to respond to future shocks. And without stronger economic growth or substantial fiscal adjustment, the general government debt burden will approach 160% of GDP by 2036, it added. 

“This trajectory points to an unsustainable medium-term fiscal path and leaves the sovereign increasingly exposed to shifts in market sentiment and financing conditions,” Scope said.

In fact, the U.S. has been rebalancing its debt toward short-term maturities and away from long-term bonds that carry higher rates. Treasury Secretary Scott Bessent continued this strategy that began under the Biden administration then doubled down on it with buybacks that call for issuing more short-term notes to retire longer-term debt.

As more U.S. debt comes due in quicker timelines, rolling it over gets costlier when yields spike as they have in recent months.

Meanwhile, price-sensitive hedge funds have become bigger players in the $32 trillion Treasury market, replacing foreign central banks that were more stable holders of U.S. debt and adding to market volatility.

Further complicating the picture is the U.S. debt limit. Scope expects the current ceiling of $41.1 trillion to be reached by early 2027. The Treasury Department can use “extraordinary measures” to prevent the U.S. from defaulting for several months, but lawmakers must act at some point.

“While Scope’s baseline assumes that policymakers will ultimately agree to raise or suspend the debt limit, the post-midterm political landscape could increase the scope for prolonged partisan standoffs,” Scope said. “Repeated debt-ceiling episodes continue to highlight weaknesses in fiscal governance and contribute to periodic market volatility.”

The report coincided with the end of the federal government’s fiscal year on Wednesday and the start of fiscal 2027 on Thursday.

According to a year-end tally by CRFB, fiscal 2026 closed with a budget deficit of $2 trillion (6.2% of GDP), publicly held debt of $32.3 trillion (100% of GDP), and debt-interest costs of $1.1 trillion—a record high 3.4% of GDP and the the second largest line item in the budget, topping defense and Medicare.

“Based on evidence from the past year, we now expect much higher interest payments and lower tariff revenue going forward, which could send deficits and debt surging well beyond [CBO’s] projections,” CRFB said in a statement.