Why Long-Term Treasury Yields Could Surge Further Amid Fiscal and Policy Risks

The writing is on the wall: U.S. fiscal recklessness is pushing long-term Treasury yields higher, and investors who ignore this risk are playing with fire. Today, I'm sounding the alarm on the unsustainable path of tax cuts, exploding debt, and policy missteps that could send 30-year yields soaring past 6% by year-end. This isn't a time to be complacent—it's time to sell your long Treasuries and reduce duration exposure before it's too late.

The Fiscal Train Wreck: Tax Cuts and a $2.7 Trillion Debt Time Bomb

Let's start with the elephant in the room: the GOP's “One Big Beautiful Bill Act.” This legislation isn't “beautiful”—it's a fiscal suicide note. The House version alone would slash $3.8 trillion in taxes over the next decade, mostly for high-income households, while cutting $1.1 trillion from programs like Medicaid and SNAP. The Senate's version is even worse, adding $5.3 trillion in tax cuts and $1.2 trillion in spending reductions.

The Congressional Budget Office (CBO) isn't mincing words: these policies will blow the deficit to $2.7 trillion by 2035, pushing federal debt to 118% of GDP—far above post-World War II peaks. . And that's just the start. If lawmakers extend expiring tax provisions, the debt could hit 203% of GDP by 2055.

This isn't a partisan issue—it's math. You can't cut taxes, slash spending on vital services, and expect investors to keep funding the U.S. at today's rates. The writing's on the wall: borrowers demand higher yields when credit quality deteriorates.

Investor Sentiment: The Bond Market's Bearish Reality

The bond market is already pricing in this fiscal chaos. 10-year Treasury yields have surged to 4.09%, and the 30-year briefly hit 5%—levels not seen since the early 2000s. . But here's the kicker: foreign investors are fleeing. Holdings of 30-year Treasuries have plummeted to their lowest since 2019, and Japan's recent 20-year bond auction flopped—a stark warning.

Why? Because buyers are demanding higher yields to compensate for rising inflation risks and Moody's downgrade of U.S. debt to Aa1. Even though Treasuries remain a “safe haven,” their safety is relative. With global trade wars escalating—China's tariffs on U.S. goods now at 125%—inflation is roaring back. The University of Michigan's April data showed one-year inflation expectations hit 1981 levels, and the Fed's Raphael Bostic warns tariffs could add 1.5% to consumer prices this year.

Policy Risks: Trade Wars, Fed Inaction, and the Yield Curve's Warning

The Fed isn't helping. Despite soaring inflation, they've signaled only one rate cut in 2025, even as the yield curve inverts (the 10-year/3-month spread is negative—a reliable recession signal). This tells me the Fed is trapped: they can't cut rates aggressively without fueling inflation, and they can't hike without crushing an already weak economy.

Meanwhile, the term premium on 10-year Treasuries is at 0.79%—a historically low figure that's barely compensating investors for the risk of holding long bonds. . But as foreign buyers retreat and deficits balloon, this premium will skyrocket, pushing yields higher.

The Bottom Line: Sell Treasuries Now—Before the Fall

Here's my call to action: reduce your exposure to long-duration Treasuries immediately. The data is clear: fiscal deficits are out of control, inflation is roaring back, and foreign buyers are fleeing. Yields aren't just going to 5%—they could hit 6% by year-end as markets price in the reality of this fiscal disaster.

If you're in Treasuries, lock in profits now and consider moving into shorter-term bonds or cash. For the brave, consider inflation-protected securities (TIPS) or high-quality corporate bonds with shorter maturities. And if you're feeling bold, take a page from private market investors: private credit and infrastructure are safer bets in this environment.

This isn't a time to be a passive investor. The fiscal and policy risks are too great. Act now—before the bond market's reckoning hits.

Action Alert: The clock is ticking. Sell your long Treasuries, shorten your duration exposure, and brace for the storm. This isn't a recession—this is a fiscal crisis, and it's coming to a bond portfolio near you.