3 min read
Long-term Treasury yields have climbed in recent weeks, driven by growing concerns over the trajectory of US debt as President Trump's proposed tax legislation advances to the Senate after clearing the House.
New concerns emerged late Wednesday after a Manhattan-based trade court struck down a wide swath of Trump's tariffs, adding to uncertainty around how the administration will manage the deficit.
"The tariffs the court struck down were likely to raise nearly $200 billion on an annual basis," Goldman Sachs said in a note to clients late Wednesday. That's "roughly the amount the fiscal package would increase the deficit next year."
Yields ticked higher in the immediate aftermath of the news before falling slightly on Thursday. In afternoon trade, 10-year (^TNX) hovered near 4.43% while the 30-year (^TYX) traded around 4.94%.
Read more: What is the 10-year Treasury note, and how does it affect your finances?
As bond markets digest the latest policy whipsaw, one strategist says investors may be underestimating just how actively the administration is working behind the scenes to manage long-term borrowing costs.
Tim High, senior rates strategist at BNP Paribas, described the Trump team as "bond vigilant — a counterweight to the so-called bond vigilantes in the market," suggesting the administration is acutely aware of the risks that higher yields and a rising term premium pose to fiscal stability.
High pointed to previous comments from Treasury Secretary Scott Bessent, who emphasized the administration is more focused on 10-year yields than on short-term Federal Reserve policy.
That matters, he said, because longer-term rates, especially the 10-year, have a bigger impact on the real economy, shaping consumer borrowing costs like mortgage rates.
Plus, the administration has tools to keep those yields in check.
One option under discussion is easing bank capital rules, which would make it easier for institutions to hold more Treasurys. Another is adjusting how the government issues debt, leaning more on short-term bills rather than longer-dated bonds, to reduce upward pressure on long-term rates.
Together, these moves signal the administration is not only watching the bond market but may be willing to act to shape it. That vigilance, High said, stems from more than just concern over rising interest payments on the national debt. Elevated long-term rates also threaten to blunt the effects of any future Fed rate cuts.
In other words, even if the Fed lowers short-term interest rates to stimulate the economy, it may not have the desired impact if 10-year yields, which heavily influence mortgage and business borrowing, stay high. Therefore, the administration's focus on the long end of the curve reflects a broader awareness: Without lower long-term rates, it becomes harder to deliver meaningful economic support.
