Economy 4 min read By Callum Montgomery
US 10-Year Treasury Yield Tops 5% as Debt Watchdogs Warn of Spiral
The benchmark 10-year Treasury yield has breached 5% for the first time in months, intensifying warnings from budget hawks about a potential debt spiral and rising borrowing costs across the economy.
The yield on the 10-year US Treasury note has climbed above 5%, a symbolic threshold that has renewed warnings from budget watchdogs about the risk of a national debt spiral. The benchmark rate reached 5.027% this week, continuing a steady ascent since February and marking a 52-week high.
The move followed a multi-billion-dollar buyback scheme by the US Treasury last month aimed at improving market liquidity. Yields briefly dipped after the intervention but quickly resumed their upward march ahead of this week’s Federal Open Market Committee meeting, with ongoing tensions in the Middle East adding to inflationary fears.
With the 10-year yield now above 5%, longer-term interest rates across the economy are rising, pushing up borrowing costs on the national debt. Budget hawks have long cautioned that the US could enter a debt spiral, a cycle in which interest payments cause debt to grow because more borrowing is needed to finance that debt.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement that if rates remain 80 basis points or more above projections over the next decade, the US is on course to spend an annual $2.7 trillion on interest payments by the end of the decade. That would exceed spending on Medicare or Social Security retirement benefits.
MacGuineas also warned that high interest rates increase the cost of living for ordinary Americans. New homebuyers are paying 7% on their mortgages, and other loans are even more expensive. For businesses, the high cost of borrowing may stifle investment, slowing economic growth and leaving Americans poorer than they otherwise would be.
She described the real threat as a debt spiral, adding that a fiscal crisis, once unthinkable, is now a distinct possibility. «If 5% interest rates aren’t a wake-up call, I don’t know what will be,» she said.
Those on the bullish end of the debt debate argue that although yields are relatively elevated, the factors driving the rise at present do not necessarily stem from fiscal concerns. Rather, they may reflect growth or inflation expectations over time, as opposed to demand for higher returns due to perceived risk in holding US debt. Bulls also contend that the US economy could grow its way out of any fiscal concerns, with increased productivity from the AI boom potentially propelling the country out of danger.
UBS’s Paul Donovan pointed out that the 5% threshold means little in a real economic sense. He told clients that economically there is no significant difference between a 4.9% yield and a 5.0% yield, but politically 5.0% has more impact, as does the direction of travel. He added that US Treasury Secretary «House» Bessent’s attempts to steer the market have not been crowned in glory, and US fiscal policy has very limited credibility at the moment.
Roman Ziruk, lead FX strategist at Ebury, noted that while the US is an outlier with its debt at over $40 trillion, rising Treasury yields are not limited to a single nation. The ongoing Iran war has fuelled a surge in oil prices, reviving inflation fears and adding a fresh layer of uncertainty as to the path for long-term central bank rates. He said this is clearly not just a US phenomenon but a global one, with yields across major economic areas all having risen in tandem with US Treasuries in recent weeks, pointing to a shared, geopolitically driven pressure on bond markets that is not confined to the US alone.
The 10-year yield is a key benchmark for global borrowing costs, influencing everything from mortgage rates to corporate debt. Its rise above 5% underscores the delicate balance facing policymakers as they navigate inflation, geopolitical tensions, and fiscal sustainability.
