Yields for long-term U.S. Treasury bonds shot up to almost 5.2 percent on Tuesday, reaching their highest levels in almost 19 years. That’s a warning sign about the wobbly state of the economy and yet another reminder of the unsustainability of federal spending.
The rate jump for 30-year Treasurys was primarily the result of investors dumping bonds over fears of persistent inflation, exacerbated by the Trump administration’s war in Iran. Yields have since relaxed a bit as oil prices fell this week, but they remain historically high.
The 10-year Treasury yield, which serves as a benchmark for mortgages, auto loans and credit card debt, also remains at its highest level in more than a year, despite earlier expectations that it would cool off. That’s dampened the housing market and added fuel to voter frustrations about rising costs.
These numbers are surely making Republicans sweat, given how potent affordability is going into this year’s midterms. But the high yields should be drawing lawmakers’ attention for more than their short-term political ramifications. The U.S. government has already spent more than $500 billion on net interest payments since the new fiscal year began in October.
Even relatively small increases in Treasury yields could add trillions of dollars to the federal debt over the decade. That in turn increases debt service payments, threatening to crowd out government investments in other priorities.
A bipartisan collection of presidents and lawmakers have contributed to this mess, and neither have laid out a coherent strategy to lead the country on a more sustainable path. It’s not enough to simply cut spending or raise taxes; the only realistic way forward is to grow the economy while tackling the government’s structural deficits.
Until that happens, bond markets will continue to punish America for its profligate abuse of taxpayers.
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