US Debt Tops 100% of GDP as Yields Test Critical Levels

A troubling fiscal milestone is testing the world’s largest bond market, as rising Treasury yields force investors to question whether they are being adequately compensated for holding U.S. government debt. At the end of March, the nation’s publicly held debt reached $31.27 trillion, exceeding 100 percent of the $31.22 trillion gross domestic product for the first time since the pandemic.

“This marks the first month in which the national debt has exceeded GDP since the pandemic,” Vail Hartman, a strategist at BMO Capital Markets, wrote in a recent note. The development, combined with stubborn inflation pressures, has pushed the 10-year Treasury yield to 4.4 percent and the 30-year yield to 4.98 percent, levels that are beginning to attract bargain hunters.

The jump in yields reflects a complex mix of inflation fears, geopolitical tensions, and a worsening fiscal trajectory that markets may not have fully priced in. While the 10-year yield is significantly higher than the 3.94 percent level seen just two months ago, some of Wall Street’s most seasoned bond investors are advising patience before buying.

The core issue for investors is whether the U.S. Treasury will be forced to increase the supply of bonds it sells to cover a widening budget shortfall. That risk is growing as the government faces a wave of up to $166 billion in tariff refunds to importers after a Supreme Court decision, according to a Reuters report. JPMorgan raised its fiscal deficit forecast for this year to $1.98 trillion and expects the Treasury’s borrowing to jump to $792 billion in the third quarter.

Supply and Demand Imbalance

The Treasury Department has kept its bond auction sizes steady since 2024, creating a temporary ceiling on rates. However, that guidance could change at its next quarterly refunding announcement on May 6. An increase in the supply of Treasuries could push prices down and yields higher to attract enough buyers.

“We're just looking for guidance on what the Treasury can do with coupons,” Jan Nevruzi, U.S. rates strategist at TD Securities, told Reuters.

This fiscal pressure is compounded by inflation driven by high energy prices. The war in Iran has helped push Brent crude to over $126 a barrel, according to CryptoSlate data, feeding into higher consumer and input costs. For bond investors, stronger inflation erodes the purchasing power of their fixed payments, leading them to demand higher yields in return. This dynamic also pressures risk assets, from equities to cryptocurrencies, by increasing the appeal of safer government bonds.

The Investor's Dilemma

The rising yields have created a dilemma: lock in seemingly attractive rates now or wait for a better entry point if fiscal and inflation risks push them even higher. For Alliance Bernstein’s head of fixed income, Scott DiMaggio, 5.25 percent is the level where he gets “interested” in buying 30-year bonds. He told Barron’s the time to get “super excited” for the 10-year note is when its yield hits 5 percent, though he concedes it may only reach 4.75 percent.

Others see opportunity sooner. Kevin Nicholson, global chief investment officer of fixed income at RiverFront Investment Group, views 10-year yields “above 4.50 percent as buying opportunities.” This suggests a potential sweet spot for investors could lie between 4.5 percent and 4.75 percent, a narrow window before a potential Federal Reserve policy shift under incoming chair Kevin Warsh, who is seen as having a bias toward lower rates.

The impact is already being felt by consumers through higher mortgage rates, which closely track the 10-year Treasury. “For the market to regain full momentum, we will need to see more than just a temporary dip in rates,” Lisa Sturtevant, chief economist at Bright MLS, told Bankrate. For now, investors remain on high alert, watching to see if the reward for lending to the U.S. government is rich enough to outweigh the mounting risks.

This article is for informational purposes only and does not constitute investment advice.