U.S. Treasury Sell-Off Alarm Intensifies: Term Premium Hits 10-Year High, Fiscal and AI-Related Debt Issuance Act as Drivers

U.S. long-term Treasury yields continue to rise, shifting market focus from the Federal Reserve’s interest rate hike path to term premiums. The New York Fed’s model shows that the term premium on 10-year U.S. Treasuries has risen by a cumulative 40 basis points since mid-September to around 0.98%, hitting its highest level since 2014; over the same period, the yield on 10-year U.S. Treasuries has increased by roughly 30 basis points. Another model incorporating economists’ interest rate forecasts puts the term premium at 1.08%, its highest since 2010. Term premiums reflect the additional returns investors demand to compensate for uncertainties such as long-term inflation, fiscal risks, bond supply, and market liquidity. Analysts note that the recent rise in long-term yields may no longer be driven solely by Federal Reserve policy expectations, but rather reflects the higher risk compensation investors require for holding long-term U.S. Treasuries. The U.S. annual fiscal deficit stands at roughly $2 trillion, with the government continuing to issue Treasuries; meanwhile, AI infrastructure development has pushed tech giants to ramp up debt financing. According to Reuters data, Alphabet, Amazon, Meta, Microsoft, and Oracle have issued approximately $220 billion in debt this year, more than double the level of the same period last year. The simultaneous competition for long-term capital between the government and corporations could further drive up financing costs. If term premiums continue to rise, even if the Fed pauses interest rate hikes or lowers its future rate expectations, long-term U.S. Treasury yields may not decline significantly, exerting sustained pressure on housing mortgages, corporate loans, and economic activity. Analysts believe that fiscal expansion, increased debt supply, and geopolitical uncertainty may signal a structural shift in the environment of persistently low long-term rates over the past decade.