U.S. Treasury · Iran · Fortune Technology
Treasury yields are already blowing up the CBO’s long-term forecasts, and experts who previously downplayed U.S. debt fears
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The 10-year Treasury yield topped 5% this past week, hitting the highest level since 2007 and blowing way past forecasts for borrowing costs over the next decade.
Key facts
- The $40 trillion in U.S. debt that has accumulated as well as $2 trillion in annual budget deficits that show no sign of improving are also factors
- According to the Congressional Budget Office’s most recent long-term outlook issued in February—before the Iran war spiked oil prices and inflation views—the benchmark yield was seen at 4.1%
- The 10-year Treasury yield topped 5% this past week, hitting the highest level since 2007 and blowing way past forecasts for borrowing costs over the next decade
- Market veteran Ed Yardeni, who coined the term “bond vigilantes” to refer to traders who protest huge deficits by selling off bonds to push yields higher, had maintained that yields of 4% to 5%
Summary
According to the Congressional Budget Office’s most recent long-term outlook issued in February—before the Iran war spiked oil prices and inflation views—the benchmark yield was seen at 4.1% this year and 4.2% in 2027. In addition to setting the pace on other borrowing costs, yields determine how much the Treasury Department must pay in interest on the U.S. debt, which can accelerate as rates go up. To be sure, an end to the war in Iran and lower energy costs would help bring yields back down, but that’s not the only source of upward pressure. The economy is running hotter, and the labor market is tight, meaning higher yields represent some normalization from crisis-era lows.