From Fortune magazine, September 19:
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.
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. The 10-year yield was expected to hover around 4.3% from 2028 to 2031, then tick up to 4.4% from 2032 to 2036.
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.
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.
At the same time, other heavily indebted countries and AI hyperscalers are competing for bond investors’ capital, so auctions require attractive yields to draw sufficient demand.
Then there’s the geopolitical environment. The recent wars, trade friction, and disasters have produced such frequent shocks that they are no longer seen as one-off events but a sign of a less stable world. That risk gets priced into yields too.
Add it all up, and the future looks more expensive. The Committee for a Responsible Federal Budget estimated that if yields remain more than 80 basis points over baseline projections, the U.S. will spend $2.7 trillion on annual interest payments by the end of the decade—more than Medicare or Social Security retirement benefits.
“The real threat is the debt spiral. If interest begets debt, and debt begets interest, eventually debt will spin out of control. A fiscal crisis, once unthinkable, is now a distinct possibility,” Maya MacGuineas, president of the CFRB, said on Monday....
....MUCH MORE
So plainly visible that even some blogger could see it coming:
April 2024 - Since Yield Curve Control Is Coming Back We Should Probably Brush Up On How It Worked In The U.S.
Sticking with the Fed for another post and working on the assumption that at some point, maybe a couple years out, buyers of U.S. Treasury paper will begin to demand more interest than the Treasury can afford to pay (forcing the Fed back into the market on a net basis) here are a couple articles that may be of interest, so to speak....
And the following month, on the effect moving downstream of the sovereign:
May 2024 - Private Equity, The Refi Crunch
I'm guessing we will be seeing more bankruptcies among the 2009 - 2022 cohorts,
And a bleat from January 2012:
....We've touched on the problems associated with racking up debt in a low interest rate environment a few times. In "Betting the Farm: Debt Brings Risk of Losing it All" we led with:
The risk for farmers is the same as that faced by the U.S. government.
It's not the debt per se, it is the cost of servicing it. Low interest rates seduce borrowers into taking on more debt than they should because the current interest cost is manageable. Should rates increase the proportion of cash flow that must go to debt service can crowd out any other use....
One more self-reverential -referential bit, this one from March 2025:
"Global debt exceeds $100 trillion as interest costs surge, OECD says"
That interest cost is the problem. Everyone knows that sovereign debt will never be repaid, just rolled for the next generation to deal with, but those current interest payments will really put a damper on the ongoing party.
Speaking of parties, the current "live for the moment" nihilistic zeitgeist brings to mind a comment by Viktor Chernomyrdin, former head of Gazprom:
On the future: "We will live so well that our children and grandchildren will envy us!"
One more from Viktor:
On economic reform: "We meant to do better, but it came out as always"
