President Donald Trump’s recent announcement of new tariffs triggered the most significant bond selloff in decades, a stark reminder of a persistent risk facing investors today.
While markets have since stabilized, the volatility highlighted deeper structural challenges that could continue to weigh on Treasury yields and, by extension, on the broader economic landscape.
Persistent higher Treasury yields pose a serious threat to the fiscal health of the United States by exacerbating the already unprecedented cost of servicing the nation’s $36 trillion in outstanding debt. Higher yields create a self-reinforcing cycle: as interest payments consume a growing share of federal expenditures, concerns about the sustainability of U.S. debt levels intensify, further pushing yields higher.
For over two decades, the U.S. government has consistently spent more than it collects in revenue. In the first half of the current fiscal year alone, the federal budget deficit reached $1.3 trillion—the second-largest six-month shortfall on record. Interest payments have now surpassed spending on Medicare and the military, making them one of the fastest-growing components of the federal deficit.
Two key factors drive this surge in interest expenses: the massive supply of federal debt and the rising cost of that debt. Since 2018, the Treasury Department has issued tens of trillions of dollars in new securities. In 2023 alone, gross issuance topped $29 trillion—more than quadruple the levels seen a decade ago. As the stock of debt balloons, so too do the government’s interest obligations.
At the same time, the cost of borrowing has climbed sharply. The weighted average interest rate on outstanding U.S. debt now stands at 3.28%, up from just 1.6% in 2022. This increase reflects market-driven factors such as inflation expectations, perceptions of credit risk, and the Federal Reserve’s monetary policy. It also reflects the natural rollover process, in which low-yielding debt issued in previous years matures and is replaced by higher-cost debt. For example, current 10-year Treasury notes are yielding more than twice what they did in early 2022.
The problem is poised to intensify. Approximately $9.3 trillion of federal debt is scheduled to mature by the end of March 2026, according to estimates by the Peterson Foundation. Of that amount, $3.1 trillion was issued more than two years ago, meaning it is almost certain to be refinanced at significantly higher interest rates. Meanwhile, the Congressional Budget Office projects that the average interest rate on the national debt will reach 3.4% in 2025 and continue climbing to 3.6% thereafter—forecasts based on the assumption that the 10-year Treasury yield averages 3.8% over the long term. If yields rise faster than anticipated, the fiscal strain could be even greater.
Indeed, Treasury yields have remained elevated throughout 2025. The benchmark 10-year yield has stayed above 4% for nearly the entire year, briefly dipping to 3.99% on April 4 before rebounding. The week ending April 11 saw a particularly sharp spike: the 10-year yield surged 50 basis points to 4.492%, its largest weekly gain since the post-recession recovery of 2001. The 30-year yield posted its biggest weekly increase since the 1987 market crash. Although yields have moderated somewhat since, few strategists believe the recent retreat marks the beginning of a durable trend lower.
The Treasury’s failure to lock in more long-term debt at the rock-bottom rates of the pandemic era has further exposed the government to today’s rising interest rate environment. “In hindsight, that would have been brilliant,” remarked John Luke Tyner, a portfolio manager at Aptus Capital Advisors. In 2020 and 2021, the Treasury issued over $40 trillion in debt—less than the $52 trillion issued during the past two years.
One avenue for potential relief could be a substantial cut in short-term interest rates by the Federal Reserve—a move President Trump has openly advocated. Trump has criticized Fed Chair Jerome Powell for maintaining higher rates, arguing that doing so is a policy mistake. Lower Fed rates would put downward pressure on Treasury yields, at least temporarily, and help alleviate some of the government's growing debt burden.
However, several structural risks could complicate any relief efforts. Chief among them is the future status of the U.S. dollar as the world’s primary reserve currency. Should confidence in the dollar erode, demand for Treasuries would diminish, exerting upward pressure on yields. Already, the U.S. dollar index has fallen 8.4% year-to-date, signaling potential cracks in what has historically been a key pillar of U.S. financial strength.
Another lever that could influence the trajectory of yields is the Treasury’s issuance strategy. Issuing a greater proportion of long-dated securities would lock in higher borrowing costs for longer but could also stabilize funding conditions by reassuring investors about the government’s commitment to prudent debt management. The Treasury Department is expected to announce its updated issuance plans this Wednesday—a development that fixed-income investors will be watching closely.
For wealth advisors and their clients, these dynamics underscore the need for vigilance in portfolio construction. The interaction between rising yields, government borrowing needs, and shifting monetary policy could introduce new risks—and new opportunities—in the bond market. Advisors may want to review duration exposure, evaluate credit quality carefully, and consider inflation protection strategies as the government’s fiscal trajectory becomes an increasingly important driver of market volatility.
At the same time, equity market implications should not be overlooked. Higher yields put pressure on stock valuations, particularly for growth-oriented sectors where long-duration cash flows are most sensitive to changes in discount rates. Advisors may want to revisit equity allocations, stress-testing portfolios against scenarios where rates stay higher for longer or where Treasury market disruptions spill over into broader asset classes.
Ultimately, while the near-term market reaction to Trump's tariffs may have subsided, the broader backdrop of rising debt service costs, high deficits, and fragile investor confidence remains a significant headwind. In this environment, wealth advisors should remain proactive, anticipating volatility rather than reacting to it, and positioning client portfolios to navigate a potentially more turbulent fiscal and monetary landscape.
