Global bond yields are surging. Here’s why it matters

By Allison Morrow, CNN

New York (CNN) — It was a tough week for the bond market. And the US government’s attempt to help offered only temporary relief.

A global rate spike in long-dated government bonds pushed yields to multi-year highs this week, driving up borrowing costs for governments, businesses and consumers. The yield surge is largely a result of mounting investor concerns about persistent US inflation and ballooning government debt, as well as competition from corporate AI-buildout debt that is sapping demand for Treasuries.

After the 30-year US Treasury yield hit 5.34% on Tuesday – its highest level since 2007, before the global financial crisis – the Treasury Department staged an unusual intervention. On Wednesday, it said it would “at least double” the amount of older, long-dated debt it regularly buys back from investors.

Treasury Secretary Scott Bessent described the move in an interview with CNBC as part of a desire to signal to the market that “we believe that the yields don’t reflect the underlying fundamentals.” He added that he believes there’s been “a lot of misinformation” about the recent deficit growth, blaming the rise on the need to provide tariff refunds following the Supreme Court’s ruling that many of the Trump administration’s levies weren’t legal.

The statement caught markets by surprise. While bond buybacks have been part of the Treasury’s standard operations since the Biden administration, the timing of the announcement was highly unusual, as it came just two weeks after the department released its buyback schedule with no mention of plans to expand the program.

Treasury yields came down sharply and stocks rallied Wednesday. But yields rose again Thursday morning, returning to roughly where they were before the buyback announcement.

The 30-year Treasury yield was hovering around 5.2% Thursday. The 10-year yield, the primary benchmark for mortgages and car loans, was near 4.7%, slightly higher than it was before the intervention.

Why investors are still on edge

Yields kept creeping upward despite the intervention, analysts say, because the Treasury alone can’t fix the core underlying problem pushing yields higher: The US government is spending far more than it is bringing in.

The federal budget deficit is running at about 6% of gross domestic product, a historically high rate the United States has rarely seen outside of wartime or deep recessions. And this week, the national debt hit a grim milestone of $40 trillion, having quadrupled since 2008.

Ultimately bond investors just want to be paid more, in the form of rising yields, for taking on what is essentially a higher-risk loan to the US government.

“If the administration could engineer a material change in fundamentals via a smaller deficit this would be a game-changer,” wrote Krishna Guha of Evercore ISI, in a note to clients. “But we and our policy colleagues are extremely skeptical.”

Adding to the pressure on government bond yields is a deluge of competing corporate bonds from tech companies racing to finance the artificial intelligence buildout. Hyperscalers like Google and Meta are issuing tens of millions in debt, vying for the same pool of bond buyers. With more bonds to choose from, many investors are shifting their money into corporate debt, which effectively pushes government yields higher.

Bessent told CNBC that he and President Donald Trump would soon announce “an increased focus on fiscal consolidation” – typically a mix of budget cuts and tax increases to shrink the deficit..

The Treasury Department didn’t immediately respond to a request for comment.

Why it matters for you

Bonds rarely capture the kind of attention that stocks do, but they are arguably more important to your day-to-day finances.

Because Treasuries are the biggest bond market, lenders like banks use them as a benchmark for deciding how much interest to charge their own customers. Mortgages and car loans, for example, are closely correlated to the 10-year Treasury yield.

The higher the yield, the more expensive it is for the government, businesses, and all of us, to borrow money.

“It’s pretty scary for Main Street to see this happening,” Heather Long, chief economist at Navy Federal Credit Union, told CNN. “And the way that they see it happening, beyond ‘$40 trillion debt’ headlines, is people check the mortgage rates constantly.”

The average 30-year mortgage rate shot up over 6% in 2022, and has stayed above that level for the past four years, putting homeownership even further out of reach for many people.

But it’s not just potential home or car buyers getting squeezed, Long added.

“There’s been an uptick in people getting credit cards and personal loans in order to make it through the inflation crunch that we’re in, and obviously those rates go up, too. That’s what really worries me — the people who really needed to lean on debt right now, it’s even harder to do.”

These higher borrowing costs are unlikely to go away soon without a significant overhaul of federal spending, or a severe economic downturn, Long said.

This week’s bond drama underscores the power the market has over the economy. Bond markets have always held sway over rates, but when investors are saying that debt and deficit levels are too high, there’s little any one policymaker can do to change their minds.

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