US Treasury Selloff Alarm Escalates: Term Premium Hits Decade High, Fiscal and AI Debt Issuance Fuel the Surge

BlockBeats news, October 9 — U.S. long-term Treasury yields have continued to climb, with market focus shifting from the Federal Reserve's rate hike path to term premiums. A New York Fed model shows that the term premium on 10-year U.S. Treasuries has risen by about 40 basis points since mid-September to around 0.98%, the highest level since 2014; over the same period, the 10-year Treasury yield rose by about 30 basis points. Another model incorporating economists' interest rate forecasts shows the term premium has risen to 1.08%, the highest level since 2010.

The term premium reflects the extra return investors demand for bearing uncertainties such as long-term inflation, fiscal risk, bond supply, and market liquidity. Analysts noted that the recent rise in long-term yields may no longer be driven purely by Fed policy expectations, but instead reflects investors demanding higher risk compensation for holding long-term U.S. Treasuries.

The U.S. annual fiscal deficit is about $2 trillion, and the government continues to issue Treasuries; at the same time, AI infrastructure construction is pushing tech giants to increase debt financing. According to Reuters data, Alphabet, Amazon, Meta, Microsoft, and Oracle have issued about $220 billion in debt this year, more than double the level in the same period last year. Governments and companies competing for long-term capital at the same time could further push up financing costs.

If the term premium continues to rise, even if the Fed pauses rate hikes or lowers future rate expectations, long-term Treasury yields may not fall significantly, thereby creating sustained pressure on housing mortgages, corporate loans, and economic activity. Analysts believe that fiscal expansion, increased debt supply, and geopolitical uncertainty may mean that the environment of persistently declining long-term interest rates over the past decade or more is undergoing a structural change.