U.S. government debt yields are surging at a bad time. Here's what's behind the move
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- 30-year Treasury yield climbed more than 40 basis points from its late-June low and approached its highest level since the early 21st century, though yields turned lower Tuesday.
- U.S. government recorded a $432.3 billion July budget shortfall, the widest single-month increase since March 2021, likely locking in a $2 trillion full-year deficit as total debt sits just below $40 trillion.
- U.S. corporate bond issuance reached nearly $1.7 trillion, up 27% from the same period a year ago and more than all of 2025, increasing competition for investor demand.
- Term premium rose as investors demanded extra yield to hold U.S. debt, adding to pressure on long-term financing costs.
- Federal Reserve kept its benchmark rate steady at 3.50%-3.75% all year, while markets priced little chance of a September increase and no high probability of a hike until December.
- Kevin Warsh remained coy about the rate path, and a more opaque central bank added tension to a market already balancing debt, inflation and corporate supply risks.
Why it matters: The government is the immediate loser: its nearly $40 trillion debt load and $432.3 billion July shortfall come as debt-financing costs reach $1.12 trillion through July, worsening the impact of higher rates on the deficit.
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