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The 10-year Treasury yield has already outrun the CBO's one-point stress case
Ten-year Treasury yields hit 5.23% on Friday, 1.13 points above the 4.1% the CBO assumed for this year in February. That gap is already wider than the one-point rise the CBO says would push US debt to 222% of GDP by 2056.
The Investor · Invest desk
What happened
- The 10-year Treasury yield rose to 5.23% on Friday, its highest level since 2007.
- In February the CBO projected the 10-year at 4.1% this year, 4.2% in 2027, 4.3% from 2028 to 2031 and 4.4% from 2032 to 2036.
- Annual interest on US debt is already $1 trillion, and the budget deficit is on pace to reach $2 trillion this year, according to Fortune.
- Sen. Jeff Merkley, the Senate Budget Committee's ranking Democrat, asked the CBO for fresh numbers, and Director Phillip Swagel replied with a scenario of rates one point above baseline.
- In that scenario, publicly held debt reaches 222% of GDP by 2056, up from 101% today.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- cost In the one-point case, 4.5 of the 4.9 extra points of GDP in the 2056 deficit are interest, so nearly all the cost of higher rates shows up in the interest bill.
- constraint Growing out of the debt gets harder: Treasury Secretary Scott Bessent has said it works at 3% growth, and the CBO puts growth 0.1 point below baseline once rates are a point higher.
- decision The CBO's flat-debt case prices restraint: a primary deficit 2 points of GDP smaller by 2056 shrinks the total deficit by 5.6 points, 3.6 of them interest saved.
Against the CBO's 4.1% for this year, Friday's yield is 1.13 points higher [1]. One point over that assumption would be 5.1%, so the market sits 0.13 points past the premium Swagel modeled [9]. Against the 4.4% the CBO assumed for 2032 to 2036, the gap is 0.83 points, about 0.17 short of a full point [2].
Before the war, the February path was close to the market [3]. Fortune reports the 10-year has risen more than a full point since just before the Iran war started [2]. Take that point off and the pre-war yield was below about 4.23%, near the CBO's figures for 2026 and 2027 [3]. The 30-year yield hit 5.49% on Friday, its highest since 2004 [3].
Debt in the one-point case ends 47 points of GDP above the CBO baseline, and that baseline is already 175% [5]. The scenario's total deficit reaches 14% of GDP. This fiscal year's is 5.8%, and the 1976 to 2025 average was 3.8% [9]. Take out the scenario's increase and the baseline 2056 deficit is 9.1% [8].
Swagel wrote that the numbers would be worse once effects on the broader economy are counted [16]. "The resulting increase in debt as a percentage of GDP increases interest rates on Treasury securities even further," Swagel wrote. "Thus, macroeconomic effects push interest rates above the initial boost that was built into the scenario." [13]
Fortune ties the rise to oil prices lifted by the Middle East conflict, AI hyperscalers spending hundreds of billions a year and an economy running hot [15]. Suppose most of the rise is the oil effect and it fades. Yields then drift back toward 4.2% to 4.4%, and the February path holds for the long run [4]. Should yields stay about a point over the path, Swagel's letter is the more realistic baseline. The third case is the feedback Swagel describes, where one point is only the starting premium and rates keep climbing with the debt ratio [13].
I think the second case is the best working assumption. Two of Fortune's three drivers, hyperscaler spending and a hot economy, do not depend on the war [15]. The case against it is that one Friday's yield is a single price, while the CBO path is an assumption about years of borrowing, and a premium built on a war would shrink if oil fell. The view is wrong if the 10-year returns to 4.4% or below and stays there, closing the 0.83-point long-run gap [2]. By Fortune's account, Congress shows no sign of willingness to rein in the deficit [6].
What to watch
- Whether the 10-year holds above 5.1%, a point over the CBO's 2026 assumption, into 2027 or falls back toward the 4.2% path.
- The CBO's next baseline, and whether it counts the macroeconomic feedback Swagel said would push rates above the scenario's initial one-point rise.
- Oil prices tied to the Middle East conflict, the one driver of the yield rise that Fortune links directly to the war.