Turmoil in Treasury bond yields sparks global worries: What to know
The Hill · C · trust 55/100
Comments: by Niall Stanage - 08/20/26 6:27 PM ET Comments: Link copied by Niall Stanage - 08/20/26 6:27 PM ET Comments: Link copied NOW PLAYING U.S. bond yields are rarely a burning issue with the general public. But that’s changed this week as a spike in yields has hit the front pages and TV newscasts.
Yields on 30-year U.S. Treasury bonds hit their highest point in almost two decades on Tuesday.
The rise prompted Treasury Secretary Scott Bessent to step in with a buyback measure aimed at alleviating the pressure.
Bessent’s tactic worked for roughly one day — Wednesday — before yields climbed back up on Thursday.
Even amid intense media attention, the topics of bond, yields and why they matter can often seem opaque.
The U.S. government has been running a deficit — spending more money than it’s taking in — for decades.
The national debt is accelerating at a rate of about $2 trillion per year. Earlier this week, it rose above $40 trillion for the first time.
Given this shortfall, the U.S. needs to borrow money to finance its operations. It does so by issuing bonds — a process that is, in essence, akin to taking out a vast number of loans.
The variables of the bond markets are infinitely complicated, but the basic idea is simple.
A person or an institution buys a bond from the government. The government instantly gets the proceeds of the sale. In return, the government promises to repay the money at a future date, and to pay interest on the bond during its lifespan.
The best-known U.S. bonds have durations of 10 years and 30 years, but lots of other options are available.
When people talk about “bond yields,” they’re basically talking about the amount of interest payable on the bond.
U.S. Treasury bonds underpin much of the global financial system in part because they have been seen as almost entirely safe. The United States has never fully defaulted on its debt.
That being said, fluctuations in the bond market — and in the overall health of the economy — cause the price of bonds, and their yields, to vary all the time.
The higher yields go, the more the federal government has to spend to finance its debts. And that’s bad news all around.
Several concerns about the U.S. economy are combining to create turbulence on the bond markets.
The $40 trillion landmark has put a dramatic point on decades of deficit spending. The U.S. government has not run a surplus since fiscal 2001.
There are concerns about inflation too, closely linked to the war in Iran.
The rise in oil prices sparked by the conflict is reflected in domestic fuel costs. This has the potential to both crimp consumer spending and to increase inflationary pressure.
Families are using more of their income to fill up the tank; farmers, suppliers and manufacturers have higher transport costs to bring their goods to market.
On top of all that, there are ripples of unease about colossal spending by corporations on artificial intelligence technology.
Firstly, much of the current spending is financed by borrowing. So if, say, Meta funds some of its spending by issuing bonds, it is in effect in competition for bond-buyers’ business with the federal government. That might mean the government has to pay higher yields to lure those buyers.
Secondly, the vast AI spending is predicated on the idea that the technology will deliver equally vast productivity gains. If that assumption proves wrong, a world of pain beckons.
As bond yields rise, mortgage rates, auto loans and credit card interest rates rise too.
The arcane terminology around bond yields can obscure what we’re really talking about: the cost of borrowing money.
At the government level, potential creditors appear to be becoming more reluctant to lend the U.S government money — unless they get rewarded with a solid yield.
Steve Hanke, a professor of applied economics at the Johns Hopkins University in Baltimore, explained: “Deficits are growing at, really, an unsustainable rate. That puts pressure on the bond markets because they [the federal government] have to sell more and more bonds to finance the deficits. So the supply is increasing.”
“But,” Hanke added, “those who are on the demand side are saying, ‘Fine, we’ll buy them but you have to pay us more to make it interesting for us.’”
As the yield on the 10-year Treasury, in particular, rises, other interest rates that are of more concern to the general consumer rise too.
And there’s more potential gloom: Higher interest rates slow economic growth, so the chances of a recession would rise.
The Treasury secretary announced on Wednesday that the government would double the amount of money it is willing to deploy to buy back long-term government debt.
The figure rose from $2 billion to $4 billion per operation.
The announcement bent yields downward — for a day.
On Thursday, yields rose again. Bessent went on CNBC to say the buybacks “could be more than the 4 billion per issue.”
He added, “We have a big toolkit, so we’ll see.”
Hanke’s pithy verdict on the tactic: “It won’t work.”
The professor, who served on former President Reagan’s Council of Economic Advisers in the 1980s, added:
“What he is trying to do is control the yield curve and keep those long-bond prices higher and the yields lower. But the problem is, if he buys them back, he still has to finance the deficit. So he is going to have to issue more of the short-term [debt]. Yield curve control is a fool’s game.”
Bessent also recently intervened to prop up the Japanese yen, aiming — with apparent success — to avoid a scenario where Japan would sell major quantities of U.S. bonds.
“Concerned!” is the answer from Mark Zandi, chief economist at Moody’s Analytics.
Zandi noted…
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