Treasury Yields Top 4.7% as Capital Demand Surges
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- 10-year Treasury yields topped 4.7% Thursday morning for the first time since January, while 30-year TIPS yields hit 2.97% — their highest since the security was reintroduced in 2010.
- Inflation expectations have barely budged — the 10-year breakeven rate edged to 2.28% since late June, still below May's 2.5% peak and consistent with the Federal Reserve's 2% target.
- The rate reset reflects finite supply of loanable funds meeting seemingly limitless demand from governments running larger deficits and corporations funding the biggest investment boom in decades.
- Alphabet raised its capital expenditure plans by an additional $15 billion this year, with CFO Anat Ashkenazi saying demand for computing capacity "still outpaces that investment."
- The Congressional Budget Office estimates every 0.1 percentage point rise in interest rates sustained over the coming decade would increase government interest expense by $379 billion.
- If the recent rate move is sustained, U.S. taxpayers face roughly $1.8 trillion in additional interest costs over the coming decade, according to back-of-the-envelope math from CBO projections.
- Mortgage rates are less likely to fall anytime soon as policy rates will need to remain higher, year in and year out, to keep the economy in balance.
Why it matters: Long-term borrowing costs are staying elevated not because of runaway inflation but because governments financing deficits and corporations building AI infrastructure are draining the global pool of capital. The Federal Reserve has no urgency to cut — inflation expectations remain near 2.3% — and every 0.1 percentage point sustained in higher rates costs U.S. taxpayers $379 billion over a decade.
