U.S. Treasury yields have surged past levels the government's own budget office had not expected to see for years, adding urgency to warnings about the long-term trajectory of American debt. The 10-year yield climbed to 5.23% on Friday, its highest level since 2007, while the 30-year yield reached 5.49%, a level last seen in 2004, according to Fortune's Jason Ma. Both benchmarks have moved more than a full percentage point higher since fighting broke out in the Middle East, a jump compounded by rising oil prices, heavy spending by AI infrastructure builders, and a national debt that has now crossed $40 trillion.
The Congressional Budget Office's most recent long-term forecast, issued in February, had projected the 10-year yield would sit at just 4.1% this year and rise gradually to 4.4% by the early 2030s. Current market pricing has already blown past those assumptions, raising the stakes for how much the federal government will have to pay simply to service its existing obligations.
What higher-for-longer rates would mean for the deficit
The scale of that exposure prompted Sen. Jeff Merkley, the top Democrat on the Senate Budget Committee, to request updated projections from the CBO. In response, CBO Director Phillip Swagel modeled a scenario in which interest rates settle a full percentage point above the agency's baseline. Even before accounting for broader economic effects, interest costs alone would push the total federal deficit 4.9 percentage points higher than the baseline by 2056 — swelling it to roughly 14% of GDP, up from an expected 5.8% this fiscal year. Debt held by the public, under that scenario, would balloon to 222% of GDP by 2056, more than double today's 101%.
Swagel's letter also warned that rising debt tends to feed on itself. "The resulting increase in debt as a percentage of GDP increases interest rates on Treasury securities even further," he wrote, noting that the model's macroeconomic effects push borrowing costs higher still, beyond the initial one-point shock used in the exercise. The CBO separately estimated the higher-rate scenario would shave 0.1 percentage point off annual GDP growth, complicating Treasury Secretary Scott Bessent's argument that the U.S. could outgrow its debt burden if growth reaches 3%.
Annual interest payments on the federal debt already total roughly $1 trillion, even as this year's budget deficit is on pace to approach $2 trillion, with little indication that lawmakers in either party plan to address the imbalance.
The counterfactual: what fiscal restraint would buy
For contrast, the CBO also modeled a scenario in which the debt-to-GDP ratio holds flat at its current 101% level. Under that path, the total deficit would come in 5.6 percentage points below baseline by 2056, and publicly held debt would be 74 percentage points lower than the baseline projection. Swagel described the growth dynamic in that scenario as reinforcing: "The increased GDP growth encourages more investment, increasing the amount of capital available to workers," he wrote, adding that a larger capital stock raises worker productivity and, in turn, further growth.
The gap between those two paths — one where yields keep climbing and debt compounds, another where the ratio simply holds steady — is now the central question hanging over Washington's fiscal policy, and increasingly over global bond markets that price and hold U.S. government debt.