CreditSights Strategist: "The notion that the U.S. government debt market is entering a dangerous phase is exaggerated"
A rise in yields on 10-year Treasury bonds to 6% or higher could lead to a crisis of investor confidence in the United States, according to Zachary Griffiths
CreditSights strategist Zachary Griffiths believes that a rise in 10-year Treasury yields to 6% or higher would be a “bad” outcome in terms of market confidence in the U.S. institutional sector. Photo: Ditya Vyas / Unsplash
In August, a crisis erupted in the U.S. government debt market: yields on 30-year U.S. Treasury bonds reached a nearly 20-year high (5.34%) in the middle of last month, while the yield on 10-year Treasuries—the market benchmark— was approaching its January 2025 peak as of September 1. BlackRock believes investors need to get used to the idea that high yields are here to stay. However, Zachary Griffiths, head of fixed income and macro strategy at CreditSights (a division of Fitch), believes that there is no sign of a full-blown crisis of confidence in U.S. debt just yet. He shared this view with Oninvest.
“We’re still quite far from a structural problem. Right now, the market situation is driven by a mechanism that leads to an increase in the term premium. This refers to the Treasury’s attempts to artificially drive down rates by intervening in the market (in August, the U.S. Treasury doubled the volume of its bond buybacks from the market—Ed.), as well as the transition period at the Fed. This has proven to be a powerful combination that has clearly raised the ceiling on rates. This is what, in a broad sense, can be called the “premium for U.S. institutional risk,” Griffiths told Oninvest.
Other factors supporting the elevated cost of U.S. government debt include heightened inflation expectations and the outlook for the Fed’s monetary policy. The situation is further exacerbated by the rise in debt issuance by hyperscalers, especially given how heavily these companies have relied on long-term borrowing to finance their AI infrastructure, Griffiths said.
Massive debt issuances to finance companies' AI infrastructure are eating into savings and are seen as one of the factors driving up yields on U.S. government securities, as Reuters also noted.
In addition, the U.S. economy and corporate profits turned out to be stronger than expected, Griffiths adds. In the second quarter of 2026, U.S. corporate profits reached a record $4.8 trillion, or 18% of national income—the highest share since World War II, according to the Financial Times.
"In and of itself, this is a positive development in many respects, including for investors. However, given that the U.S. government may continue to maintain a budget deficit of 5–6%, state authorities face the problem of how much it costs America to finance persistently high deficits,” said Griffiths.
What are the prospects for how the situation will develop?
According to Reuters, the latest escalation of the conflict with Iran has heightened fears that central banks will have to raise interest rates to combat inflation. The likelihood of a Fed rate hike in September has increased: following comments by Fed Chairman Kevin Warsh that progress in fighting inflation has been insufficient, investors are bracing for a scenario of higher interest rates over a longer period of time.
At present, the very idea that the U.S. Treasury bond market is entering some kind of “dangerous” phase is somewhat exaggerated, according to Griffiths. The market is likely approaching a point where the budget deficit and higher borrowing costs will finally force lawmakers to adopt a more fiscally responsible approach.
"Transitions like this take a long time, but perhaps we are now witnessing the very beginning of this process," he believes.
Bond yields may decline, but this is unlikely in the near term, CBS reports, citing analysts. Volatility in the debt market is likely to persist in the short term. Yields on 30-year and 10-year Treasury bonds will reach 5% and 4.5%, respectively, by the end of the year, according to an earlier estimate by Ulrike Hoffmann-Burkhardi, Chief Investment Officer for North and South America and Head of the Global Equities Division at UBS Global Wealth Management.
What might a “bad” outcome look like?
Bond investors are increasingly questioning the safety of U.S. Treasury bonds and are beginning to view them as a risky asset, according to Reuters.
A rise in the yield on 10-year Treasury bonds to 6% or higher would likely be a “bad” outcome in terms of changes in market confidence in the U.S. institutional sector, according to Griffiths.
On September 3, it stood at 4.77%.
This article was AI-translated and verified by a human editor
