US Treasury Yields Near Two-Decade Highs, Prompting Policy Debate

On October 5, long-term Treasury yields rose to their highest levels in more than twenty years. The 10-year Treasury note reached 5.28 %, briefly breaching 5.3 %, while the 30-year yield also hit multi-decade peaks. The United States now carries over $40 trillion in debt, generating an interest bill of about $1 trillion a year. Higher borrowing costs are pressuring both the federal budget and private borrowers.

US Bond Yields Keep Rising: Can Washington Control Borrowing Costs Without Fueling Inflation?

Washington’s Treasury is already leaning on short-term bill issuance and modest buybacks of older debt to improve market liquidity. Analysts note that a more aggressive “Operation Twist”-style program—selling short-term securities while the Federal Reserve purchases long-term bonds—could flatten the yield curve, echoing the 1961 strategy. If that proves insufficient, policymakers could consider explicit yield-curve control, whereby the Fed commits to buying unlimited government debt to keep long-term yields below a set ceiling, a tool last used during World War II (capped at 2.5 %).

ReutersUS Bond Yields Keep Rising: Can Washington Control Borrowing Costs Without Fueling Inflation?

Federal Reserve Chairman Kevin Warsh has warned that large-scale bond-buying blurs the line between monetary policy and debt management, urging a new Treasury–Fed accord with public communication of objectives.

Reuters

Despite the yield surge, the economy shows resilience: heavy investment in artificial-intelligence infrastructure is sustaining growth, offsetting weakness in housing and autos. However, September job creation slowed to 29,000 jobs, far below expectations, and the unemployment rate rose to 4.2 %, underscoring lingering labor-market softness. Persistent inflation risks remain, especially if the government leans on monetary policy to lower borrowing costs, which could erode confidence in Treasury securities and push yields higher.

US Bond Yields Keep Rising: Can Washington Control Borrowing Costs Without Fueling Inflation?

• Kevin Warsh criticized the Fed’s large holdings of Treasury securities and called for a transparent Treasury–Fed framework.

Reuters

• John Higgins, chief economic adviser at Capital Economics, highlighted that the U.S. has only twice reduced its debt-to-GDP ratio since World War II, noting that post-war reductions relied on capped borrowing costs and higher inflation, whereas the 1990s decline stemmed from higher rates, spending restraint, and rising revenue.

Reuters

• “We're getting to the point where it's quite obvious that the government is getting uncomfortable with the level of rates,” — Jeffrey Gundlach, chief executive at DoubleLine Capital — Jeffrey Gundlach, chief executive at DoubleLine Capital.

Reuters