Higher US Bond Yields to Persist Amid Economic Growth Expectations and Debt Burden

Recent Treasury bond yields have been higher than expected, and it's likely that this trend will continue. The Federal Reserve raised policy rates by 25 basis points in September, which may seem counterintuitive for lowering yields, but actually bolstered the central bank's credibility.

This credibility is a good sign from an economic and policy perspective, as stable inflation expectations suggest less worry about accelerating price pressures.

So, what's behind the higher Treasury yields? Expectations of US economic growth are one reason. The capital-spending boom on artificial intelligence has bolstered near-term growth, and the view that productivity will rise in the future implies a faster growth trajectory.

Another factor is the rising US debt burden. Gross federal debt recently topped $40 trillion, which is more than 120% of GDP. This means higher interest payments, making new government debt more costly and requiring more money just to pay the interest.