Debt costs are rising, but today’s bond yields are not unprecedented

U.S. long-term borrowing rates recently reached levels last seen in 2007, but a financial analysis argues that a 5% long-term bond yield is closer to historical normal than a crisis signal. It says real long-term yields of about 2.8% remain well below levels common in the 1980s and above the unusually low averages recorded from 2009 through 2021.

The analysis says the larger concern is the federal government’s heavy debt load and the refinancing of older, lower-cost borrowing. The average interest rate on roughly $40 trillion in debt is about 2.61%, but more debt will be refinanced at current market rates, raising interest costs even if long-term yields remain unchanged.

It estimates that repricing the entire Treasury debt stock to a 5.21% rate would increase annual interest costs to about $2.03 trillion, or 6.4% of gross domestic product, though that scenario has not occurred.

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