Silke Mayr Long-term U.S. government borrowing rates climbed above 5% on Monday for the first time in over a year, following a credit downgrade by Moody’s. The spike in yields reflects growing concerns about America’s rising debt and ongoing political gridlock.
The interest rate on 30-year Treasury bonds rose to 5.04% before easing slightly by the end of the trading day. It was the first time since October 2023 that yields crossed this mark. Moody’s recent downgrade of the U.S. credit outlook triggered the move, citing long-term debt challenges and the lack of clear fiscal policy.
What Is Driving the Surge in Treasury Yields?
U.S. government bonds, also known as Treasuries, are widely used to fund public spending. Investors buy these bonds, lending money to the government in return for regular interest payments and full repayment at maturity. When confidence weakens, yields increase to attract buyers.
Higher yields usually mean higher borrowing costs for the government. This change can ripple through the economy, pushing up interest rates on mortgages, car loans, and credit cards.
Moody’s Downgrade Adds to Investor Concerns
On Friday, Moody’s lowered its outlook on U.S. government debt. The agency pointed to a decade of growing deficits, weak political consensus, and a rising national debt that now exceeds $36 trillion.
The downgrade came just as Congress advanced a large tax-and-spending bill that could add $3 trillion more to the debt. Many lawmakers argue the move is necessary for economic stability, but financial experts warn that investors are losing patience.
“This is not just about debt numbers,” said Thierry Wizman, a strategist at Macquarie Bank. “It’s about the government’s inability to change direction. That’s what Moody’s is really flagging.”
Why Bond Yields Matter to Everyone
The rise in Treasury yields impacts more than just Wall Street. Higher government borrowing costs lead to higher interest rates across the board. For example:
- Mortgages become more expensive, which can slow home buying.
- Small businesses pay more for loans, affecting hiring and growth.
- Consumers face higher rates on credit cards and auto loans.
While many homeowners are shielded by fixed-rate mortgages, new buyers face steeper monthly payments. Some small businesses, already struggling with inflation, may delay investments or even reduce staff.
Historical Context: Yields Have Been Rising Since 2021
This is not the first time bond yields have spiked. Since 2021, rates have trended higher due to post-pandemic inflation, geopolitical instability, and trade tensions. Yields briefly touched 5% in late 2023 but later fell as markets calmed.
The recent return to 5% reflects deeper concerns. Analysts point to a combination of factors, including:
- Uncontrolled spending growth
- Political fights over budget limits
- Limited action to address long-term fiscal gaps
Moody’s was the last of the major credit agencies to downgrade the U.S. outlook. The move follows earlier warnings by Fitch and S&P.
Interest Payments Could Strain Future Budgets
Moody’s estimates that interest on federal debt could absorb up to 30% of total government revenue by 2035, up from 9% in 2021. This leaves less room for public services, defense, and infrastructure.
Such a shift would challenge lawmakers to either raise taxes, cut programs, or borrow even more—none of which are politically easy options.
Investors and Lawmakers Face Tough Questions
The recent jump in yields and the credit downgrade send a clear signal to financial markets: the U.S. needs a better plan. Investors will now watch closely to see how Congress and the White House respond.
Without a clear fiscal path, more volatility could follow.
“Borrowing costs will keep rising unless Washington shows discipline,” said one bond analyst. “This isn’t just a numbers issue—it’s about trust.”