Capital Markets Update #28
US Government debt and deficits have dominated headlines this week as the US creeps towards $40T in total government debt outstanding. Government debt currently sits at 120% of total US GDP, up dramatically from 106% of GDP in Q4 2019 (thanks Covid) and 100% of GDP in Q3 2015 (FRED data). There are so many things to worry about in this market, sometimes it’s easy to forget the treacherous path ahead for the US Treasury department as it attempts to walk the tightrope between structural fiscal deficits and an unfortunate lack of political energy behind fiscal austerity.
At present, the yield on the 10-year treasury sits at 4.70% while the 30-year treasury yields 5.30%. If you were to compare these securities historically, the 10-year yield is below its 5-year high of 4.90% achieved in 2023, but above the 4.00% - 4.50% trading range it has occupied for much of the last 18 months. Alternatively, the 30-year Treasury yield currently sits at a ~20-year high, having risen steadily since touching 3.98% in September 2024. The US government has issued a net $4T in new debt since January 2025, most of which sold relatively well based upon at-the-market demand and pricing metrics.
The question we’re most interested in pursuing throughout this piece is whether or not the bond markets are trying to warn the US Government of a macro concern related to a) structural US fiscal deficit spending and/or b) relative demand for US debentures. We took a look at US rates vs global bond yields, market participation in US government new debt sales and total investment grade supply in the market in order to inform our conclusions.
First, we think it’s important to address commentary around the 30-year yield. Immediately after Fed Chair Warsh and colleagues elected to hold the Fed Funds rate steady during their scheduled July meeting, the 30-year treasury yield jumped from 5.10% to 5.28%. For a week thereafter, select fixed income managers (likely those long 30-year note risk) and nearly every “economist” of record appeared on CNBC attempting to jawbone the market into believing the Fed had lost precious credibility in its fight against inflation. The truth is much less severe. Treasury Bonds include all US debt securities in excess of 10-years duration – which is really just 20 and 30-year bonds. The Bond market is a fraction of the overall US government debt market and constitutes a mere 17% of all US marketable debt securities outstanding. Now, that still represents approximately $5.5T in principal; but, the securities, and therefore the on-the-run yield index, are habitually more exposed to underlying derivative bets. Said another way, it takes less to move these markets than the gargantuan $16T Treasury Note market, largely made up of 10-year note issuance (US Treasury data). Another characteristic of the 30-year is its often less appealing to foreign governments. In the most recent August 2026 treasury auction, indirect bidders (usually foreign governments bidding through a domestic intermediary) took 76% of 10-year notes sold as opposed to just 66% of 30-year bonds. These indirect, often foreign government, bidders hold onto the securities for the long term as opposed to direct bidders, which include domestic fixed income money managers, insurers or hedge funds. Domestic direct bidders often actively trade the securities and therefore increase market volatility around major events. The point being, developing macro-market takeaways from discreet movement in the less-liquid and more jumpy 30-year bond markets is an imperfect science, at best. So, while the trajectory of the 30-year is interesting on a trended basis, it functions more like a signpost than an actual map. We hope commentators stop clinging onto its whims as the anchor to their imperfect arguments. By our estimation, they’re wrong both in their conclusions and in their interpretation of the data, which is unfortunate.
In terms of interpreting market signals around demand for US government debt, we would first point market participants to the yield profile for global sovereign bonds. As we stated earlier, the US 10-year treasury yield currently sits at its highest level since 2023. If you exclude this brief 2023 idiosyncrasy, we’re really back to pre-GFC 2005 / 2006 levels. By comparison, French 10-year yields are back to 2008 highs, UK yields are back to 2007 highs, Japanese yields are literally back to 1995 highs and German yields are back to 2001 highs. The only major bond market bucking the trend would be the Chinese, which are presently offering about 1.7% interest on a 10-year note, down from 3.7% interest in 2018 and 2.7% in 2024. So, setting aside the Chinese, which are attempting to manage an economic hollowing for the ages, nearly every other major developed economy is exhibiting similar yield curvature. To some extent, this makes sense. Nearly all developed economies are reflating and re-adjusting yield targets coming out of the GFC and ensuing economic stagnation which largely dominated the 2007 – 2020 period. What does this tell you? Underlying trends in the UST-10yr are more macro driven at the moment than fear of US inflation or insolvency.
Secondly, it’s always helpful to derive conclusions based upon actual data. If you want to evaluate the world’s willingness to buy our debt, take a look at debt auctions and see who bid on what. Seems reasonable, right? We found a great datasource at yieldcurve.pro which tracks historic indirect bidder participation in new-issue 10-year treasury auctions. As a reminder, indirect bidders are usually foreign governments buying treasuries for reserves. Data shows that indirect bidder participation has increased from 35% - 45% of total auction size in 2010 – 2015 to around 55% - 65% from 2016 – 2020. From 2021 – 2023, while the US increased rates at a faster clip than competitive developed-nation central banks, indirect bidder participation jumped to 70% - 80% and has since settled closer to 65% - 70%. As a matter of fact, our most recent 10-year treasury auction in August saw a 2026 high of 76% indirect bidder participation. Overall, when you pan out a bit, the trend is not only exceptionally positive but also relatively understandable. Following the GFC, countries slowly rebuilt foreign reserves over the ensuing decade. Post-Covid, foreign governments feasted US bonds from 2021 – 2023 while the US offered better credit at a higher yield than Europeans or Japanese counterparts (seemed like, and was, quite the investment layup). If an educated observer was to mention US assets decreasing as a share of foreign exchange reserves, one must point out the fact that the second largest balance sheet in the world (China) is half way through unwinding a $1.3T treasury position. That has nothing to do with relative US competitiveness in sovereign bond market and is ultimately savvy geopolitical positioning by a long-term-thinking geopolitical adversary. China aside, there appears to be no long-term weakness in demand for US treasuries by foreign governments.
Finally, we must address the global glut in supply of high-grade fixed income securities – both public and private. US investment grade issuance is up a whopping 38% YoY through July 2026 while global debt issuance has exceeded $5.0T faster than ever before (Yahoo Finance and Bloomberg). The fact that excellent hyperscaler credits are expected to issue over $200B in long-dated fixed-income paper throughout 2026 further underscores the reality that global competition for fixed income capital is fierce (Reuters). For instance, Alphabet recently priced A$5.5B of 20-year new-issuance at 6.98% or 1.85% over the Australian 20-year benchmark (Reuters). So, you could buy the 20-year Treasury (S&P: AA+) or go buy Alphabet 20-year paper (S&P: AA+) and earn nearly 200bps of extra yield paid every year, for the next 20 years. That alone should tell investors that fixed-income markets are getting stretched thin. According to ICE, option adjusted corporate high-grade spreads have widened 8 bps since June 15th. That may not seem like much but actually equates to an approximately 8.5% loss in the value of the underlying bond collateral given an 8-year duration for the index. Furthermore, the unabated debt verses equity allocation debate continues to exacerbate the fixed-income capital supply shortage. The basic conundrum antagonizing CIO’s everywhere often boils down to do we want more debt or equity exposure in this environment? With equity indices continually busting through all-time highs and US equities experiencing a record inflow of capital YTD through June 2026 (BofA), the global demand for capital everywhere is just widening fixed income yields. You can almost hear the market saying “If you want my money, you gotta pay more for it.” Alphabet wasn’t immune to this bias in its recent 20-year issuance and neither is the US Government.
In summary, it’s impossible to know for sure what the market is trying to tell us. US Government bill, note and bond yield widening hurts everyone. It increases the fiscal deficit on an annual basis meaning we have to issue more debentures to cover interest and the vicious cycle persists. We wholeheartedly support an effort to reign in our fiscal spending and pay-down outstanding debt. Will it happen in our lifetime? Most likely. Will it happen in the next 5-years? Likely not. Until then, the data shows us that demand for US debt continues to be strong and the market remains rational.