The 10-year Treasury Yield Eclipsed 4.6%

The 10-year Treasury note surpassed 4.6% today, 45 basis points above projections from the Congressional Budget Office (CBO) and more than 60% higher than the 2.8% average over the past decade. Meanwhile, the 30-year Treasury yield is now above 5.1%, compared to a 3.2% average over the last decade. The 3-month Treasury yield is around 3.9%, which is more than 50% above the 2.4% average over the past decade and more than 50 basis points above projections.

Interest rates have been rising across nearly every maturity despite easing inflation last month. The conflict in Iran continues to put upward pressure on interest rates – a situation that is not helped by our rising national debt.

If interest rates were to remain above projections for this year and be 45 basis points above projections across the yield curve through the decade, it would add an additional $1.7 trillion to the national debt. Under the scenario, debt would rise to 124% of Gross Domestic Product (GDP) by Fiscal Year (FY) 2036, as opposed to 120% of GDP under CBO’s baseline projections. By FY 2036, interest costs would total $2.4 trillion, nearly two and a half times their FY 2025 level.

On their current course, rising interest rates and rising debt are leading interest to consume a larger share of federal revenue, as interest rises to be the second largest line item in the federal budget. With average interest rates on debt approaching expected growth rates (R>G), there is growing risk of a debt spiral or even fiscal crisis.

Lawmakers should pursue thoughtful deficit reduction to slow debt growth, put downward pressure on interest rates, grow the economy, and put debt on a more sustainable path.