Aug. 22 at 7:56 PM
$SPY $TLT $SGOV $IEI
The U.S. yield curve has steepened dramatically over the last year, and it isn't hard to see why.
U.S. federal debt has now surpassed
$40 trillion.
Here's why that number is so significant:
- Roughly 1/3 of U.S. government debt must be refinanced within the next year
- Net interest: ~13.5% of total federal spending
This creates different pressures across the yield curve.
Short-term Treasury yields remain closely tied to expectations for Federal Reserve policy.
Long-term yields, however, must also compensate investors for greater duration risk, inflation uncertainty, fiscal risk, and the growing supply of Treasury securities.
That combination produces a steeper yield curve.
The 30 year was sitting at 4.88% a year ago, but now sits at roughly 5.27%.
At
$40 trillion of federal debt, movements at the long end of the Treasury curve are increasingly reflecting not just expectations for the Fed, but the market’s assessment of U.S. fiscal policy.
The U.S. yield curve is steepening, and the country’s growing financing needs are an important part of the story.
