Surging Treasury Yields Deepen Concerns Over U.S. Debt Outlook

U.S. Treasury yields have climbed to multidecade highs, increasing borrowing costs and intensifying concern about the federal debt outlook. Fortune reported that the 10-year Treasury yield reached 5.23% on Friday, its highest level since 2007, while the 30-year yield rose to 5.49%, the highest since 2004.

The increase has pushed yields above the Congressional Budget Office’s February projections, which forecast the 10-year yield at 4.1% this year and no higher than 4.4% through 2036. Higher Treasury yields also raise the government’s interest costs and influence borrowing rates faced by consumers and businesses.

In response to a request from Sen. Jeff Merkley, the ranking Democrat on the Senate Budget Committee, the CBO modeled a scenario in which interest rates gradually rise to 1 percentage point above its baseline. Before accounting for broader macroeconomic effects, the agency estimated that the federal deficit would be 4.9 percentage points of gross domestic product higher by 2056 than under its baseline. The deficit would reach 14% of GDP, while publicly held debt would rise to 222% of GDP, compared with 101% currently and 47 percentage points higher than the CBO’s baseline projection for 2056.

The CBO also estimated that economic growth would be 0.1 percentage point below baseline. Director Phillip Swagel said the resulting increase in debt relative to GDP could push Treasury interest rates still higher, further worsening the projections.