Like debt, US bond yields continue to climb

The market for US debt is experiencing significant turbulence, with bond yields continuing their upward trajectory. On August 13, an auction for $25 billion in 30-year US Treasury bonds yielded a rate of 5.22%, a level not seen in 25 years. This follows a late July auction where 30-year debt yields already surpassed 5% and a prior auction for $42 billion in 10-year debt reached a yield not observed since 2007.

These rising long-term yields are occurring against a backdrop of a widening US budget deficit. In July alone, the deficit stood at $432.3 billion, a figure not exceeded since March 2021, during the height of the COVID-19 pandemic. The US Treasury attributes this financial shortfall to increased spending on programs such as Medicare, the reimbursement of customs duties, and the substantial interest payments on the national debt.

Projections indicate that the cumulative deficit for the first ten months of the fiscal year is expected to reach $1.8 trillion, surpassing the total deficit recorded during the same period last year. This escalating debt and the associated interest costs are putting pressure on the US fiscal outlook, contributing to the heightened yields demanded by investors in the bond market.