Bond Market Signals Rising Concern Over U.S. Fiscal Outlook

The US bond market is signaling growing concern about the government's fiscal position as Treasury yields remain elevated and federal borrowing needs compete with strong private-sector demand for capital.

U.S. Treasury yields rise as investors assess the government's fiscal outlook.

Writing in Fortune, economist Alexander William Salter argued that higher Treasury yields reflect the rising real cost of financing the federal government.

He characterized the development as a warning about the country's fiscal trajectory.

The 30-year Treasury yield closed at 5.62% on Sept. 30, according to Salter's Fortune article. Federal Reserve data show the 30-year Treasury constant-maturity yield was 5.64% that day, broadly consistent with the level cited in the article.

Salter also cited $857 billion in interest costs during the first nine months of the fiscal year, saying that figure exceeded federal spending on Medicare or national defense.

One interpretation is that investors have become concerned about inflation or the long-term value of the dollar.

Salter notes, however, that the data do not necessarily support that explanation.

The 30-year breakeven inflation rate was about 2.28% in September, according to Federal Reserve Bank of St. Louis data.

At the same time, the 30-year inflation-indexed Treasury yield reached 3.27% for the week ending Sept. 30.

That indicates that the real yield component of long-term Treasury borrowing had risen above 3%. The combination suggests that higher nominal Treasury yields cannot be attributed solely to higher expected inflation.

Real borrowing costs have also increased, meaning the federal government faces a higher cost of financing its debt.

Salter argues that this reflects competition between federal borrowing and private investment for available savings.

He points specifically to the enormous capital requirements of the AI industry, including data centers, semiconductor facilities and electricity infrastructure.

The Congressional Budget Office projects large federal deficits, with its February baseline putting the fiscal 2026 deficit at $1.9 trillion. In July, the CBO raised its full-year estimate to $2.1 trillion.