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Treasury Secretary Scott Bessent has a math problem, and the bond market is done waiting for him to show his work.
Long-term US Treasury yields have climbed to levels not seen since 2006, with the 10-year hovering around 4.65-4.7% and the 30-year yield pushing above 5%. When the government’s cost of borrowing money rises that sharply, every financial product tethered to those rates, from 30-year mortgages to corporate debt, gets more expensive too.
The deficit elephant in the room
The Congressional Budget Office projects annual budget deficits of approximately $1.9 trillion, or about 5.8% of GDP for fiscal year 2026.
To finance deficits of that size, the Treasury has to keep flooding the market with new debt. Bessent has shown flexibility on long-end issuance, meaning the Treasury is adjusting how much debt it sells at those painful longer maturities. Instead, he’s leaned more heavily on short-term T-bills, where 3-month notes carry yields around 3.8%.
The strategy buys time, but it also compresses the maturity profile of outstanding US debt. That means more frequent refinancing cycles and, critically, more exposure to short-term rate fluctuations.
A credibility gap widens
Earlier in the Trump administration, Bessent described US Treasuries as the best-performing developed bond market in 2025. That claim has aged poorly as yields marched higher and prices moved in the opposite direction.
The US also executed its first yen intervention since 1998, a move aimed at bolstering Japanese demand for US Treasury securities. Japan remains one of the largest foreign holders of US debt.
What rising yields mean beyond the bond market
The ripple effects of 30-year yields above 5% extend well beyond the fixed-income desks at major banks. Mortgage rates, which loosely track the 10-year Treasury yield, have remained stubbornly elevated. For a housing market already grappling with affordability problems, that translates into fewer buyers qualifying for loans and slower transaction volumes.
Corporate borrowers feel it too. Companies that need to refinance existing debt or fund expansion are staring at meaningfully higher costs than they faced even 18 months ago.
For risk assets broadly, sustained high yields create a gravitational pull. When government bonds offer 5% with effectively zero credit risk, the hurdle rate for everything else, equities, real estate, venture capital, rises correspondingly.
Bessent’s challenge is fundamentally about convincing a skeptical market that the US can manage its fiscal trajectory. Bessent has inherited deficits among the largest recorded outside periods of recession or wartime, with debt levels exceeding $39 trillion, while his administration aims for deficit reduction targets approaching 3% of GDP. He needs the market to trust the asset that the market is increasingly worried about.
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