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US Treasury Bond Yields Are the Highest Since 2007: Here’s How We’re All Paying For It

Taxes, bonds, and government debt aren’t the sexiest of topics, but they control everything around you — your mortgage rate, your savings yield, and your paycheck. And increasingly, they’re a central conversation in financial media again. It’d be wise to pay attention.

Return of the debasement trade: Americans might have differing perspectives on taxes and how they’re spent, but one thing’s for sure — we aren’t raising enough of them for our spending. Partisans are making the budget problem worse (opens in a new tab), placing the liability on wage workers (opens in a new tab) already suffering an affordability crisis, and continuing to propose more favored treatment for property owners (opens in a new tab). We’ve aimed to highlight that efforts to simplify the tax code have failed, and that complacency won’t be an option for much longer. This week, we got a glimpse of what happens when policymakers don’t act proactively, as the 30-year Treasury hit a 19-year high at 5.337%.

• The US Treasury committed to double buybacks of long-duration bonds (opens in a new tab), hoping to halt the rise in yields caused by inflation, geopolitical, and war worries.
• This is a band-aid solution for the real problem — the US budget deficit — which could fuel inflation, weaken the currency, and in turn, reduce the value of the debt.
• While the 30-year yield fell on the news, it popped back up to end the week, wrapping up just shy of 5.3% — and there are emerging worries it could march onward to 6% (opens in a new tab).

How It Affects Your Future

The recent ascent in yields demonstrates why policy matters, and reveals an uncomfortable truth for policymakers. If they remain complacent, the market will simply force their hand. The debt is not a trivial amount of money; it’s a figure that takes options away from Americans as it grows and puts pressure on yields.

• Practically speaking, higher Treasury yields mean higher risk-free rates, leading to higher borrowing costs for consumers and businesses, which curtails economic growth.
• The situation is a doom loop: more debt leads to further credit worries and higher interest costs, which contribute to a larger deficit and even higher yields.
• That could dampen the picture for equities or risk assets, affecting their attractive rate of growth — it might even call for closer consideration of the bond part of your portfolio.

Fairness is the fix: An enormous amount of political baggage has been tied to solving the US debt crisis, but there’s only so far you can kick the can. Ironically, patching America’s $40T debt might be easier than thought — it’s a matter of fixing favorable treatment in the system, ending tax loopholes, and collecting more tax revenue from sources beyond W-2 workers. Taken together, along with reasonable spending reforms, the US can claw out of this. In between regular personal finance content, we’ll touch on more fiscal topics and how they might affect you.