The premium investors demand for holding long-term U.S. government bonds has jumped, pushing 30-year Treasury yields above 5.2% for the first time since 2007. The term premium on 10-year notes now sits between 0.80% and 1.35%, a level that reflects growing concern about the government's fiscal outlook.
Why the term premium is climbing
The rise is driven by fiscal deficits. As the government borrows more to fund its spending, investors are asking for more compensation for the risk that inflation or default erodes the value of long-dated debt. That extra compensation, known as the term premium, has been a persistent drag on the bond market.
What the numbers say
The 30-year yield crossing 5.2% marks a return to levels not seen since 2007, before the financial crisis. The 10-year term premium, which had been near zero or even negative in recent years, has now swung to a range of 0.80% to 1.35%. That shift means investors are no longer treating long-term bonds as a safe haven.
The fiscal backdrop
The government's borrowing needs are the root cause. With deficits expanding, the supply of new debt is growing faster than the demand from traditional buyers like foreign central banks and pension funds. That imbalance forces yields higher to attract buyers.
The pressure on long-term rates shows no sign of easing as long as deficits remain large. The next Treasury auction will be a key test of whether investors are willing to absorb the growing supply at current yield levels.
