US bond yield spike panics White House and Wall Street

The 10-year yield on a US Treasury bond topped 4.70% earlier this week, a grim omen for the US economy. The yield is the amount the US has to pay to bond holders to purchase US debt, and its trickle down effects create a drag throughout the economy. Higher yields impact everything from the US sovereign debt to mortgage payments. It would also increase borrowing costs for businesses of all sizes,

In response to the yield spike, the Treasury announced it would more than double the amount of bonds it would buy back. This succeeded in getting the yield back down to 4.65% by the end of Wednesday. However, it’s uncertain whether this fix will hold, and it’s possible it could even backfire if the larger factors driving global economic uncertainty do not subside.

Before the US and Israel started the war on Iran in February, the 10-year bond yield was 3.97%. Rises in the costs of oil and other commodities due to the closure of the Strait of Hormuz have played a major role in driving up costs. At present, there is no end in sight to that conflict or the global economic disruption it has caused.

As a result of the yield increase, the federal government’s debt load rose to $40 trillion, accounting for interest. Many developed economies carry a massive debt load, and much of it is interlinked. A few weeks ago, the US intervened in Japan’s debt crisis by buying up Japanese yen. This was in part a move to help an ally, but Japan is also the largest foreign holder of US debt, with over $1 trillion in securities. Propping up the Yen prevented the Japanese central bank from selling off its US debt holdings, which would have increased the yield on US bonds further.