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The jump in yields has intensified the debt debate

U.S. Treasury yields on the 10-year note rose above 5%, settling at their highest levels in decades. The increase has deepened concerns that Washington’s interest burden could grow even heavier as public debt continues to expand. In the first 11 months of fiscal 2026, the federal government’s net interest expense is estimated at about $1.05 trillion.

Some analysts focused on debt dynamics warn that rising yields could create a self-reinforcing cycle. As investors demand higher rates, borrowing costs rise, which in turn can push the government to borrow even more. According to projections from the Congressional Budget Office (CBO), the share of federal debt held by the public will reach roughly 101% of GDP in fiscal 2026.

The rise is not driven by budget worries alone

Even so, some institutions tracking the bond market say the current picture does not yet point to a breaking point. TD Securities argues that the recent rise in yields is tied not only to fiscal concerns but also to the U.S. economy proving more resilient than expected.

  • Stronger economic growth and expectations of Fed rate moves
  • Higher oil prices and corporate bond issuance
  • Position shifts by short-term investors

BMO Capital Markets also says the move in long-term bond yields is largely driven by higher real yields. The firm says investors are pricing in the resilience of the real economy despite sticky inflation and elevated borrowing costs. For that reason, the rise in yields is not being seen on its own as a sign of an imminent fiscal crisis.

Why a fiscal crisis scenario is not leading the discussion for now

TD Securities estimates that federal interest expense could rise to about $1.1 trillion in fiscal 2026. If yields stay at current levels, that figure could climb to $1.4 trillion in 2027, $1.5 trillion in 2028 and $1.6 trillion in 2029. But analysts note that the entire debt stock is not being refinanced at today’s higher rates all at once.

The average maturity of U.S. public debt is around 5.9 years. Excluding Treasury bills, the average coupon rate on Treasury securities is about 3.1%. The average interest rate on the debt is also roughly 3.4%, still below nominal economic growth, which was reported at an annualized 8.5% in the second quarter. That helps keep the debt burden looking manageable in the short term.

L&G Asset Management takes a similar view. The firm says the dollar’s reserve currency status and the depth of U.S. markets provide an important buffer. Still, the outlook could change if higher rates begin to do more visible damage to the economy. In a BMO survey, respondents said the pressure would likely first show up in housing at 42%, followed by stocks at 26% and corporate credit at 21%, while only 1% saw the labor market as the first vulnerable area.

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