Treasury Yields Rise Amid Weakening Demand for U.S. Debt, Analysts Say
Analysts note that despite mixed economic data, long-term U.S. Treasury yields are climbing as demand for government bonds weakens and concerns grow over the expanding fiscal deficit.
Analyst Michael Brooks wrote in a Substack post Tuesday that U.S. policy is now focused on preventing long-term borrowing costs from rising sharply, citing Treasury Secretary Scott Bessent’s plan to double debt buybacks. He said recent economic data showing weaker activity have not lowered long-term yields, contrary to historical patterns, indicating upward pressure from the market. > “As far as I can tell, it’s an all-hands-on-deck situation where long-term yields are concerned,” Brooks wrote.
Brooks pointed to the anomalous behavior of the 10-year Treasury yield as a sign that demand for Treasury debt is weaker than it appears. He noted that while the latest jobs report exceeded expectations, other data over the past month have fallen short, yet yields have continued to rise instead of falling.
He added that the recent escalation of the U.S. conflict with Iran has pushed oil prices higher, adding to inflation concerns. With U.S. debt now around $40 trillion, the issue is drawing attention alongside the AI sector, and similar yield increases are being observed in the U.K., France, Germany and Japan.
RSM Chief Economist Joseph Brusuelas said last month that debt becomes unsustainable when global financial markets deem it so, suggesting that market sentiment is shifting. At the same time, traditional buyers such as foreign central banks are reducing their Treasury holdings, with Norges Bank Investment Management proposing to shift away from U.S. debt. Hedge funds have become larger participants, increasing price sensitivity and market volatility.
The Treasury Department may need to offer higher yields to attract investors as the annual budget deficit approaches $2 trillion and no legislative action appears imminent. Brooks argues that the decoupling of yields from economic data reflects market focus on the deficit outlook.
Wall Street veteran Ed Yardeni offered a contrasting view, dismissing immediate debt-crisis warnings and suggesting yields are returning to pre-pandemic levels. He acknowledged the debt trajectory is unsustainable but said bond vigilantes have not yet reacted strongly. > “Treasury yields remain in a range broadly consistent with a healthy economy, and we expect the 10-year yield to remain between 4.00% and 5.00%,” Yardeni predicted.