Long-term US Treasury bond yields have climbed above 5%, coinciding with a federal deficit near $2 trillion for the 2026 fiscal year. The 10-year Treasury yield has risen 123 basis points since the end of February, reaching 5.19% by Wednesday's close, according to the source material. The Congressional Budget Office estimates the deficit will reach around $1.993 trillion, placing it in the range of 6.0-6.2% of gross domestic product.
Higher rates are already affecting American households and businesses. Mortgage rates, which track the 10-year Treasury yield, are hovering around 7.5%, prompting a slowdown in the housing market. Pending home sales dropped 4% in September, marking the biggest monthly decline in three years, Redfin reported.
Multiple factors are pushing yields higher, including the war in Iran that began on February 28, which raised long-term yields. Oil and diesel prices have climbed sharply, leading bond traders to demand more yield given potential Federal Reserve rate increases. Investors are also demanding higher compensation for holding longer-term government bonds as companies issue hundreds of billions in new debt for infrastructure projects.
The deficit problem is compounded by political obstacles to solutions. With a divided government expected after the November midterms, meaningful fiscal reform appears unlikely in the near term. Treasury Secretary Scott Bessent has argued the US should target a deficit below 4% of GDP by the end of President Donald Trump's term, but such a target appears out of reach. The Committee for a Responsible Federal Budget estimates that balancing the budget through growth alone would require a decade of 7.2% annual growth, a threshold rarely achieved.