U.S. government borrowing costs just hit their highest level since 2002, and the bill is coming due for every working American holding a mortgage, an auto loan, or a credit card.
The yield on the 10-year Treasury breached 5.33% on Thursday, a level not seen since April 2002, according to LSEG data. The 30-year yield jumped past 5.67%, also a 24-year high. These numbers aren't abstractions — they are the baseline that sets the cost of borrowing for the entire American economy. When Washington pays more to finance its debt, you pay more to finance your life.
The sell-off is global — the UK's 30-year gilt hit 6% for the first time since 1998, Japan's 10-year yield reached a three-decade high, and German and French yields surged — but the American piece of this puzzle is a story of fiscal failure at home. CNBC reported that investors are expressing concerns over "a lack of political action to tackle fiscal deficits, while inflation remains sticky and interest rates rise." The Institute of International Finance put it more bluntly last week: major economies now face "persistently large deficits and rising interest expenses — challenges long associated with debt-distressed emerging market sovereigns." Read that again. The IIF is comparing the United States to countries that go begging to the IMF.
The Guardian framed the sell-off as driven primarily by Middle East conflict restricting oil supplies and fears that the Federal Reserve will keep hiking rates. CNBC emphasized the fiscal-deficit angle. Both are real, but the deficit problem is the one Washington can control and has chosen not to. Even a softer-than-expected inflation reading couldn't calm the bond market. Axel Rudolph, chief technical analyst at IG, told The Guardian that "investors remain wary that persistent inflation and higher oil prices could keep rates elevated for longer," with a December rate hike still on the table. The dollar climbed to a three-month high on that expectation — cold comfort to Americans whose debt service costs are climbing faster than their paychecks.
And the pain is already moving downstream. Mortgage brokers told The Guardian that Barclays raised home-loan rates for the second time in a single week. David Hollingworth of L&C Mortgages warned that "rising funding costs are putting pressure on lenders which may lead to further repricing in the weeks ahead" and that borrowers should act sooner rather than later. If the bond market is repricing American debt, the American homeowner is getting repriced right alongside it.
The 2-year Treasury yield sits at 4.91%. The short end of the curve is telling you the Fed isn't done. The long end is telling you the market doesn't believe Washington will ever get serious about the debt. The question is which one breaks first — rates, or the people paying them.
