Yield on 10-year US government bonds holds near 4.8%
The yield on 10-year US government bonds has risen by about 0.75 percentage points over the past six months and recently held near 4.8% — the highest level during President Donald Trump’s second term. According to CNBC Top News, borrowing costs may be affected by large volumes of government debt, political risks, and rising corporate borrowing to develop artificial intelligence infrastructure.
Demand for US debt
Allianz Chief Investment Officer and Chief Economist Ludovic Subran said that some global investors have become more cautious about US debt. Among the factors, he cited large budget and trade deficits, inflation that remains above the Federal Reserve’s 2% target, and actions by the US Treasury in the market.
According to Subran, Allianz decided this year not to increase its investments in long-term US bonds as it had previously. He explained that, after accounting for inflation and hedging costs, such investments did not generate a profit. The US Treasury plans next week to increase buybacks of some long-term government bonds to improve market liquidity.
Competition for capital
The US Congressional Budget Office raised its estimate for the federal budget deficit in the current fiscal year to $2.1 trillion. It is expected to exceed 6% of gross domestic product. The United States is projected to reach its $41.1 trillion debt limit between late winter and mid-summer 2027.
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Construction of data centers and AI development are creating additional demand for borrowed funds. According to JPMorgan estimates, five major technology companies, Nvidia, and special-purpose vehicles used to guarantee data center leases have issued about $320 billion in debt obligations since the start of the year. Michael Cembalest, chairman of market and investment strategy at J.P. Morgan Asset Management, suggested that large borrowing volumes by hyperscalers could create a demand-supply imbalance at the long end of the yield curve.
Impact on lending
Mortgage rates in the United States have approached 6.8%. Their movement is linked to the yield on 10-year Treasury bonds, as are rates on auto loans and other types of consumer lending.
The yield on 10-year US Treasury Inflation-Protected Securities, or TIPS, has risen by 67 basis points over six months to 2.43%. New York Federal Reserve Bank President John Williams told CNBC that the increase in real yields more likely reflects the strength of the economy than a deterioration in financial conditions. In his view, an economic slowdown may be needed to reduce borrowing costs.
