US Treasury Secretary Scott Bessent, in a move befitting the most economically interventionist US administration in half a century, announced his intention last week to intervene to artificially cap runaway yields on US government debt.
The move, which had a tiny positive impact that lasted less than a day, signals the Trump administration’s growing panic over rising yields on its long-term debt. Yields on 10-year and 30-year Treasury notes remain at about 20-year highs. That indicates buyers need a serious incentive to dip their toes into the increasingly toxic waters of US government debt.
Why are the interest rates the US government is paying on its bonds higher than they have been at any time since the great financial crisis? It’s largely because the US fiscal and budget situation is a train wreck, with runaway budget deficits, gobsmacking levels of government debt, and no apparent plans by Republicans, who control Congress, and the White House to do anything about it.
“I don’t think it really offsets the longer-run worries about any plan for the deficit or the uncertainties about monetary policy. It’s like spitting in a bucket,” said Maurice Obstfeld of the Peterson Institute for International Economics.
Most of the debt increase in recent years has come from US President Donald Trump’s first-term tax cuts, topped off by an even bigger tax cut in the second term’s One Big Beautiful Bill; another big chunk came as the Biden administration responded with emergency stimulus to a historic economic slowdown during the Covid-19 pandemic.
Total US national debt topped a record $40tn this week, and it is not slowing down. The federal budget deficit—basically how much of an overdraft the federal government has on its checking account—for fiscal year 2026 to date (the fiscal year started last October) is $1.8tn and counting.
What that means is that interest payments on that debt—think of a credit card with a decent interest rate but a really, really big balance—are ballooning, with expenditures of around $1tn so far this fiscal year. That will likely double over the next decade, if trends hold.
The US national debt has risen by $4tn since Trump took office last year. Debt has doubled since Trump took office the first time in 2017, going from just under $20tn then to $40tn today. That is to say, half of all the outstanding debt incurred by the United States since 1789 has come since Trump’s first election.
That is one big reason that bond buyers have been souring on US debt. Bessent’s cosmetic, small-scale interventions beginning next month won’t fix the underlying problem: spend now and hope to grow out of the hole. But it will muddy the waters by making it harder to discern what the “true” yield is on long-term government debt. Bessent’s intervention may throw a wrench into Federal Reserve Chair Kevin Warsh’s plan to have the markets give the Fed unvarnished feedback on the real state of the economy.
“Nobody is talking about the fundamental problem, which is not that markets are worried for no reason, but that markets have reason to be worried,” Obstfeld said.
Another reason for the spiking bond yields is that the people buying the debt aren’t the same ones who bought it a decade-plus ago.
The Fed chair “is really rolling the dice” while holding out against interest rate hikes, one expert said.
As recently as 2015, nearly half the holders of long-term US government debt were foreign countries, mostly central banks, who just wanted a risk-free place to stash their money and earn predictable returns; they didn’t care much about the price. Today, however, the overwhelming purchasers of government debt are hedge funds, banks, and other institutional investors who are, in industry parlance, “price-sensitive.” Perhaps that explains the lukewarm reception to the Treasury’s latest auction of 30-year bonds.
The United States is not alone this summer in facing a bond-yield apocalypse. Many other developed economies, especially Japan but also Germany, France, the United Kingdom, and Italy, have also seen bond yields spike over very similar worries about growing piles of debt and little fiscal discipline.
