Analysis: Lower Treasury yields could require a weaker economy. Trump won't fix them

Long-term Treasury yields remain near highs of President Donald Trump’s second term despite White House efforts to bring them down. Global investors are demanding more compensation to hold U.S. debt amid deficits, Fed-independence concerns and Treasury-market intervention. AI infrastructure spending is adding to the competition for capital as tech firms issue debt to fund chips and data centers. Lower yields may require a weaker economy, which would ease borrowing costs but undercut U.S. growth.

President Donald Trump's administration's policies are helping keep bond yields higher despite the White House's own attempts to lower them. With the 80-year-old president unlikely to change his spots, Americans may not like what it could take to provide interest-rate relief: a weaker economy that cools borrowing costs but undercuts U.S. growth.

The investor base for U.S. debt has become more price-sensitive over the years as central banks and reserve holders have stepped back as buyers relative to parts of the private sector. Some of those global investors are starting to shun U.S. debt because policy changes under Trump have had the effect of worsening the economics for them. That is an uncomfortable turn for markets that are already seeing signs of a competition for capital between the flood of deficit spending and the surge of debt issuance funding the buildout of artificial intelligence.

The yield on the 10-year U.S. Treasury note has risen by roughly three quarters of a percentage point in the past six months. Lately it has hovered near 4.8%, the highest yield of the second Trump administration, despite efforts to bring it down.

The Treasury Department will start next week to increase its buybacks of some long-term U.S. debt, an effort designed to improve liquidity in the market. Investors have also raised interest rates as they try to infer how new Federal Reserve Chairman Kevin Warsh will react to inflation that remains above the Fed's 2% target.

"Of course, everybody wants to ask for a bit more price to lend money to the U.S.," Ludovic Subran, chief investment officer and chief economist for Allianz, a European insurer and asset manager, said in an interview. That judgment isn't political — it's "pure economics," Subran said.

Subran ticked off a set of factors he says have come to add something resembling credit risk to U.S. debt: "soaring [federal budget and trade] deficits, Fed unfazed by inflation, Treasury tampering with markets." He doesn't necessarily believe the U.S. will default on its debts, but he said Allianz — like many other global investors — has had to pay more to hedge its bets in the U.S.

The U.S. is projected to hit its $41.1 trillion debt limit between late-winter and mid-summer 2027. This year, "we also have decided not to find duration in the U.S. fixed-income market like before, because it's not interesting," Subran said. After accounting for inflation and hedging, "we were not making money," he said.

The rise in yields is a source of aggravation for Americans already frustrated by affordability problems. Mortgage...