Treasury yields are already blowing up the CBO’s long-term forecasts, and experts who previously downplayed U.S. debt fears are now starting to worry

The 10-year Treasury yield has reached a record high, surpassing the Congressional Budget Office's long-term forecasts and spurring concern among experts who previously dismissed U.S. debt worries. According to the CBO, the benchmark yield was projected at 4.1% for this year and 4.2% in 2027. However, the actual yield has exceeded 5%, the highest level since 2007, and is projected to continue rising.

This upward trend is attributed to a combination of factors, including a stronger economy, tight labor markets, and the growing U.S. debt burden. The $40 trillion in U.S. debt combined with a $2 trillion annual budget deficit shows no signs of improvement, which adds to the pressure on yields. Furthermore, other heavily indebted nations and AI hyperscalers are competing for limited bond investor capital, necessitating more attractive yields to secure demand.

The geopolitical landscape has also contributed to the risk premium embedded in yields, as frequent shocks due to wars, trade tensions, and disasters have made investors more sensitive to potential instability. Leading experts, such as Maya MacGuineas of the Committee for a Responsible Federal Budget, are now expressing heightened alarm over the potential consequences of persistently high yields, warning of a looming "debt spiral" that could spiral out of control.