U.S. Debt at $40T as Yields Decouple From Data, Expert Warns — SkimNews
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- Robin Brooks of the Brookings Institution wrote that long-term Treasury yields are decoupling from weak economic data — failing to fall as they historically would — and called the dynamic an 'all-hands-on-deck situation' signaling weaker-than-expected demand for U.S. debt
- U.S. national debt has reached $40 trillion with the federal budget deficit heading toward $2 trillion per year, and Treasury Secretary Scott Bessent is doubling debt buybacks to keep long-term borrowing costs from rising further
- Norges Bank Investment Management, the world's largest sovereign wealth fund with $2.3 trillion in assets, has proposed reshuffling holdings away from Treasuries, part of a broader pullback by foreign central banks that are increasingly favoring gold over U.S. government debt
- Hedge funds have filled the void left by retreating foreign buyers as major Treasury holders, but their price sensitivity is stoking volatility and forcing the Treasury Department to offer higher yields to attract investors
- Treasury yields are also surging in the U.K., France, Germany, and Japan, as governments since COVID have continued spending as if borrowing costs remained at crisis-era lows even after rates climbed to fight inflation
- RSM Chief Economist Joseph Brusuelas said debt becomes unsustainable 'when the global financial markets say it is,' arguing that moment now appears to be arriving
- Ed Yardeni pushed back, predicting the 10-year yield will stay between 4.00% and 5.00% as rates normalize to pre-financial-crisis levels rather than signal an imminent debt crisis
- The intensifying U.S. war on Iran has pushed oil prices higher in recent weeks, worsening the inflation outlook and adding upward pressure on yields alongside the deficit concerns
Why it matters: With U.S. debt at $40 trillion and a deficit approaching $2 trillion annually, the Treasury market is signaling it demands higher compensation to absorb government borrowing — especially as Norway's $2.3 trillion sovereign wealth fund and other foreign buyers walk away, leaving price-sensitive hedge funds to set the terms of America's borrowing costs.
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