Treasury Yields Hit Multi-Decade Highs as National Debt Surges Toward $40 Trillion

Financial markets and investors are demanding higher yields to absorb the expanding U.S. national debt, which is approaching $40 trillion as annual federal budget deficits remain over $2 trillion.

Yields on U.S. Treasurys have been elevated recently, in part due to the growth in debt, with the federal government projected to run a roughly $2.1 trillion budget deficit this fiscal year, according to the nonpartisan Congressional Budget Office (CBO).

Two recent Treasury auctions in the last week drew attention due to the yields reaching historic levels – the sale of 10-year notes cleared at a high of 4.683%, the highest in 19 years, while the 30-year bond auction stopped at 5.216%, a 25-year peak.

Despite these surging yield levels, investor appetite for U.S. debt obligations has remained steady. According to official data from the U.S. Department of the Treasury, total public debt outstanding officially surpassed $35 trillion in July 2024, up from $34 trillion recorded at the start of the year. Demand from domestic and foreign buyers has held up largely because U.S. yields remain above those offered on government debt from other developed nations, including Japan.

Jim Barnes, director of fixed income at Bryn Mawr Trust in Pennsylvania, noted that the appetite for Treasurys remains intact at these elevated rates, stating that the “10-year at close to 5% and the 30-year at multi-decade highs will attract more buyers for risk-free Treasurys.” While Treasurys carry low formal default risk due to the federal government’s taxing power and Fed monetary control, investors still face market risks driven by shifts in inflation and benchmark interest rates.

The persistent high yields directly increase the federal government’s debt servicing costs. Treasury Department statistics show that federal net interest spending hit $882 billion in fiscal year 2024, a 34% increase from the $658 billion spent in fiscal year 2023. Higher benchmark Treasury yields also spill over into consumer credit, elevating borrowing costs for 30-year fixed mortgages, auto loans, and personal credit lines.

A 10-year budget and economic outlook released by the CBO projected that net interest costs will exceed $1 trillion in fiscal year 2026, representing approximately 3.3% of gross domestic product (GDP) and nearly 14% of total federal spending. By fiscal year 2036, annual net interest expenditures are projected to reach $2.1 trillion, accounting for 4.6% of GDP and absorbing 19% of the federal budget.