5 minEconomy
Treasury Yields Hit Two-Decade Highs as CBO Warns U.S. Debt Could Balloon to 222% of GDP
The 10-year Treasury yield climbed to 5.23% and the 30-year to 5.49%, the highest levels since 2007 and 2004 respectively, prompting the Congressional Budget Office to model a scenario in which publicly held debt reaches 222% of GDP by 2056 and the total deficit swells to 14% of GDP.
U.S. Treasury yields have surged to their highest levels in roughly two decades, pushing borrowing costs sharply higher and prompting the Congressional Budget Office to warn that the nation's debt trajectory could deteriorate far beyond its earlier forecasts. The 10-year Treasury yield reached 5.23% on Friday, its highest reading since 2007, while the 30-year yield climbed to 5.49%, the highest since 2004. The 10-year yield has risen by more than a full percentage point since just before the Iran war began.
The yield surge has already blown past the CBO's long-term projections. In forecasts issued in February, the agency expected the 10-year yield to average 4.1% this year, 4.2% in 2027, 4.3% from 2028 through 2031, and 4.4% from 2032 through 2036. Those estimates now look outdated. Yields set the pace for other borrowing costs across the economy, and they directly determine how much the Treasury Department must pay in interest on the national debt. Annual interest expenses have already reached $1 trillion, while the budget deficit is on pace to hit $2 trillion this year, with little political appetite for reining in either figure.
The rapid climb in yields prompted Sen. Jeff Merkley, the ranking Democrat on the Senate Budget Committee, to request fresh numbers from the CBO. In a letter responding to the senator, CBO Director Phillip Swagel examined a scenario in which interest rates rise one percentage point above the agency's baseline. Before accounting for broader economic effects, the CBO estimated that the primary deficit, which excludes net interest outlays, would be 0.4 percentage point larger by 2056 than under the baseline. The total deficit, however, would be 4.9 percentage points larger, illustrating how much of the additional burden comes from interest expenses.
Under that scenario, the total deficit would expand to 14% of GDP, up from 5.8% expected this fiscal year and well above the 3.8% average recorded from 1976 to 2025. Publicly held debt would explode to 222% of GDP by 2056, compared with 101% today and 47 percentage points above the CBO's current baseline forecast for that year. The agency also projected that GDP growth would run 0.1 percentage point below its baseline as capital is funneled toward Treasury bonds rather than more productive uses, dampening hopes that the U.S. can simply grow its way out of the debt. Treasury Secretary Scott Bessent has said that outcome is possible if growth reaches 3%.
The CBO cautioned that its figures would likely worsen once broader economic effects are incorporated. «The resulting increase in debt as a percentage of GDP increases interest rates on Treasury securities even further,» Swagel wrote. «Thus, macroeconomic effects push interest rates above the initial boost that was built into the scenario.»
For comparison, the CBO also presented a scenario in which the debt-to-GDP ratio somehow remains flat at its current 101% level. In that case, the primary deficit would be 2 percentage points smaller than the baseline by 2056, the total deficit would be 5.6 percentage points smaller, and publicly held debt would be 74 percentage points smaller. GDP growth would be only 0.05 percentage point higher than the baseline before accounting for additional spillover effects. «The increased GDP growth encourages more investment, increasing the amount of capital available to workers,» Swagel wrote. «That higher capital stock raises the marginal product of labor, encouraging more labor, which results in further GDP growth.»
The yield spike reflects a combination of pressures: oil prices elevated by the Middle East conflict, hundreds of billions of dollars in annual spending by AI hyperscalers, an economy running hot, and a national debt that has reached $40 trillion. With interest costs compounding as rates rise, the gap between the CBO's February assumptions and current market reality has become a central concern for lawmakers weighing the fiscal path ahead.
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