How much does the U.S. have to pay to convince the world to keep lending it money for 20 years? – Getty Images/iStock
The U.S. Treasury on Wednesday will be asking investors to hand over another $16 billion for 20 years to help finance the nearly $1.8 trillion U.S. budget deficit so far this year.
The answer from investors probably will be “fine, but you need to pay us close to a 5.28% yield” — the going rate for existing 20-year Treasury debt on Tuesday, and the most it’s cost Washington to borrow this way since the 20-year tenor was auctioned six years ago. With long-term Treasury yields recently hovering at multidecade highs, traders have begun asking the uncomfortable question: How much will the U.S. need to pay to convince the world to keep lending it money?
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Normally, Treasury auctions are routine financial events that play out in the background without much of a fuss. But persistent government deficit spending, fresh policy uncertainty under the new Federal Reserve Chairman Kevin Warsh and a surge in overall debt issuance has turned individual auctions into high-stakes market events.
When a Treasury auction results in higher yields than expected, it suggests weaker market appetite. Because bond prices and yields move in opposite directions, a higher yield occurs when buyers force prices lower before agreeing to lend to the government.
It tends to get even more expensive to borrow for longer periods, which can also push up 30-year mortgage rates. That’s why alarm has been building as the 30-year Treasury yield on Tuesday BX:TMUBMUSD30Y briefly traded as high as 5.327%, the most since June 12, 2007, while the benchmark 10-year rate BX:TMUBMUSD10Y hit 4.747%, the highest intraday yield since Jan. 15, 2025, according to Dow Jones Market Data.
Those yields eased on Wednesday after the Treasury Department announced it will at least double the level of government debt buybacks in the next few months, specifically targeting bonds with maturities of roughly 10 to 30 years. The move calmed a stressed bond market and sent longer-dated Treasury yields lower.
Still, higher bond yields recently became a new worry for the bull market in stocks, with the S&P 500 SPX, Nasdaq Composite COMP and Dow Jones Industrial Average DJIA on Tuesday headed for a third straight day of declines.
“It has to do with either the long-term view of monetary policy or this increase in capital demand for capital-expenditure investments in technology and AI,” said John Velis, FX and macro strategist for the Americas at BNY.
“We don’t want to say it’s crowding out investment in Treasurys, but it’s raising the cost of capital across the board,” he told MarketWatch via phone on Tuesday.
In order of importance, concerns about the fiscal deficit are “the dominant and most durable driver” for the recent selloff in long-term Treasurys, said Yulia Alekseeva, head of fixed income at MissionSquare.
A flood of long-duration corporate bonds from “hyperscalers” to fund their data-center buildouts has been making the problem worse, she said. There’s also been confusion over future monetary policy at the Fed, preventing the stabilization of longer-duration Treasury debt, she added.
Investors tend to require more yield on long-duration debt of 10, 20 and 30 years because it exposes investors to decades of inflation risk and the possibility that a government will just keep printing more debt. To help compensate for taking on that extra risk over time, investors demand a higher premium, thus pushing yields higher.
Beyond the U.S., deficits and higher energy prices from the Iran conflict have been factors in pushing up global yields in most developed economies. Germany’s benchmark 30-year bund yield BX:TMBMKDE-10Y was at a 15-year high of 3.763%, while its French counterpart BX:TMBMKFR-10Y reached its highest yield since 2008. Japan’s 30-year bond yield BX:TMBMKJP-10Y rose to 4.1285%, topping the 30-year high seen in the spring.
“There’s definitely the same trend happening pretty much amongst the major fixed-income markets,” said Luis Alvarado, co-head of global fixed income at Wells Fargo Investment Institute. “The issue with the U.S. is that the size of the Treasury market dwarfs the combined size of the Japanese, U.K., E.U. and other countries in Asia.”
“Deficits are happening globally, so it’s not a U.S.-only story,” he added.
Yet as global rates climb, it can make investments in the U.S. look less favorable. “You get some money moving back into those other economies, and that’s going to put some natural pressure on foreign buyers of Treasurys,” said Charles Luke, chief investment officer at City National Bank and RBC Rochdale.
“That’s why I think the Treasury is a little nervous, at this point,” he said, adding that climbing Treasury yields this summer have yet to cap yields or tame the bond selloff.
