Treasury Yields Top 5% And Could Rise More. Here's What To Do

Forbes

23-05-2025

'Sell America' could be the global catch-phrase for investors as tax cuts and rising defense spending add $2.4 trillion to the deficit — boosting treasury yields and pushing down the dollar.
Traders work after the closing bell at the New York Stock Exchange (NYSE) on August 7, 2019 in New ... More York City. - Wall Street stocks finished little changed on August 7, 2019, following a choppy session as a plunge in treasury bond yields early in the day underscored worries about a weakening global economy. (Photo by Johannes EISELE / AFP) (Photo credit should read JOHANNES EISELE/AFP via Getty Images)
A budget bill that could add $2.4 trillion to the national debt passed the House, noted the Washington Post.
The 30-year treasury yield topped 5.1% after a $16 billion treasury bond auction failed to attract much interest, the Post reported.
Mortgage rates surged to 7.08%, noted Mortgage News Daily.
The price of gold climbed to $3,336 per ounce — near a record high, according to GoogleFinance.
Investors are losing interest in America's long-term government securities — sending the 30-year treasury yield to 5.1%. The most recent force driving up that yield is the House passing a spending bill that could add $2.4 trillion to the national debt, reported the Washington Post.
Why should investors care? The move raises interest rates for consumers — mortgage rates hit 7.08% — and for companies. Gold has resumed its upward climb and could top its record high.
Long-term treasury rates could keep rising. How so? Foreign investors could continue selling the roughly $9 trillion in U.S. debt held overseas, according to the Post. Moreover, $14 trillion in U.S. debt maturing soon will be refinanced — likely at higher rates, noted CNBC.
Higher interest rates and more debt service could push down the value of the dollar — compounding the inflationary effect of the Trump administration's tariffs for American consumers.
When added to the higher prices caused by tariffs — including President Donald Trump's May 22 threat to impose 50% tariffs on goods exported from the European Union and warning of 25% tariffs on foreign-made Apple iPhones, according to the Wall Street Journal — the odds of a recession loom even higher.
The so-called 'One Big, Beautiful Bill' would expand and make Trump's 2017 tax cuts permanent, producing 'an economic boom,' administration officials said, according to the Post.
The bill would also add to the national debt and increase how much taxpayer money goes to paying interest on U.S. debt. The bill will add $2.4 trillion to the national debt by 2035, according to the Congressional Budget Office and boost the most recent fiscal year's unprecedented budget deficit of more than 6% of gross domestic product, noted the Post.
Moreover, the bill will increase the more than $881 billion going to interest payments in 2024 — more than twice the 2021 figure — noted the CBO. The U.S. now spends more on interest 'than it does on national defense or Medicare,' wrote the Post.
One rating agency anticipated the fiscal damage this bill might cause. Last week, Moody's 'stripped the U.S. of its last set of triple-A credit ratings, pointing to growing U.S. debt woes over at least a decade as a reason,' according to the Post.
Investors expressed a loss of confidence in the U.S.' fiscal soundness. The result could force the Federal Reserve to choose between fighting inflation by raising rates or dampening a recession by cutting them. Meanwhile, analysts see a drop in the dollar and big challenges for investors seeking returns.
Here are some examples:
Given the murkiness and volatility accompanying the tariff wars and current fiscal policy, it is difficult to make solid predictions and imagine profitable investment ideas. Nevertheless, the current trajectory described above could lead gold prices to climb, U.S. interest rates to keep rising, and the dollar's value to decline.
Meanwhile, one expert sees some emerging markets government bonds as strong options for investors looking to diversify away from U.S. treasuries in their fixed income portfolios.
'China's credit rating is A1 with a stable outlook, and [the U.S.-China 10-year] yield spread makes the former an interesting option despite the uncertain development of the import tariff exchange game,' London-based liquidity solutions provider B2BROKER's chief dealing officer John Murillo told CNBC.
'Several high-paced developing countries away from the prime rating league — like Indonesia and Malaysia — are en route to becoming particular beneficiaries of the current fixed income portfolio reshuffles. For example, a 10Y Indonesian sovereign bond offers approximately a 7% yield,' he added.
If you do not buy such securities, you could put cash in a money-market fund, which would pay a higher yield should the Fed boost interest rates to fight inflation.