24 August 2026: Weekly Update – US Debt, Rising Bond Yields and Fiscal Risk

Nonetheless, in the case of the US, its Treasury Department responded on Wednesday, announcing that it would at least double the maximum size of liquidity-support buybacks for certain longer-dated nominal coupon securities in the 10-20-year and 20-30-year sectors, from US$2 billion to at least US$4 billion per operation. Initially, this pushed long-dated yields lower, though much of that desired move in yields subsequently unwound.

While the Treasury’s operation may help day-to-day market functioning and marginally alter the maturity profile of outstanding US debt, it does not reduce its government’s underlying financing requirements. The market’s limited and short-lived response was therefore consistent with investors remaining focused on the larger question of fiscal deficits, increasing debt issuance and the compensation required to own very long-dated government securities.

While to many these numbers may seem abstract, they matter to the real economy. US Treasury yields provide an important benchmark for mortgage rates and corporate borrowing costs, so a sustained rise in longer-term yields tightens financial conditions even without a change in the Fed funds rate. The fiscal effects of higher yields can also become self-reinforcing: higher yields raise interest costs and refinancing requirements, potentially adding further to investor concern about the long-run path of government debt.

US federal interest outlays were approximately US$970 billion in FY2025, exceeding national-defence outlays. Official data, updated annually, shows federal interest outlays reached 3.15% of GDP in FY2025, more than double the level that prevailed through much of the 2000s and 2010s. The post-GFC era of near-zero policy rates and subdued inflation is over, yet fiscal policy has barely acknowledged the shift, leaving the interest burden at levels last seen in the 1980s and 1990s, and with potential to rise further.

We have remained mindful of avoiding excessive duration exposure within the T. Bailey Multi-Asset portfolios. Our direct exposure to US government debt is through the iShares $ Treasury Bond 7-10yr UCITS ETF, GBP Hedged. This gives the portfolios exposure in the middle of the curve rather than the longer-dated 20-to-30-year segment where volatility has been greatest, though it still carries some sensitivity to changes in US yields.

Alongside this, given elevated fiscal borrowing requirements and the risk that persistent deficits may weigh on confidence in fiat currencies over time, we also hold exposure to gold (via the iShares Physical Gold ETC). While by no means a perfect hedge, this longstanding position is intended in part to provide diversification for the portfolios during periods of heightened concern over fiscal credibility, real yields and monetary conditions. It has done just that so far this month, with the gold price rising from US$4,047 to US$4,595 per troy ounce.