SCHQ: The Long Duration Engine—Capturing Yields in a High-Debt World

The U.S. national debt has surged past $37 trillion as of August 2025, a figure that underscores the nation's deepening fiscal challengesUS National Debt: $37 Trillion and Growing, [https://govfacts.org/explainer/us-national-debt-37-trillion-and-growing/]^[1]. This milestone, reached years earlier than pre-pandemic projections, reflects a combination of pandemic-era stimulus, inflationary pressures, and expansive legislative spending. With the debt growing at a rate of roughly $1 trillion every five months, the economic implications are stark: higher borrowing costs for consumers, reduced private-sector investment, and a ballooning share of federal budgets devoted to interest paymentsDebt to the Penny - U.S. Treasury Fiscal Data, [https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/]^[2]. Against this backdrop, the Schwab Long-Term U.S. Treasury ETF (SCHQ) has emerged as a focal point for investors seeking to navigate the intersection of duration risk and bond yield sustainability.

The Long-Duration Dilemma

SCHQ, which tracks the Bloomberg US Long Treasury Index, is designed to hold U.S. Treasury securities with maturities of 10 years or more. As of 2025, the fund's weighted average maturity stands at 23.2 years, with an average yield to maturity of 4.08%SCHQ Summary - schwab.wallst.com, [https://www.schwab.wallst.com/Prospect/Research/etfs/summary.asp?symbol=schq]^[3]. This long-duration profile makes SCHQ particularly sensitive to interest rate fluctuations—a double-edged sword in an environment where U.S. fiscal pressures are driving term premiums higher.

The fund's exposure to long-term Treasuries is both a strength and a vulnerability. On one hand, its holdings offer attractive yields in a low-interest-rate world. On the other, rising rates or shifting investor sentiment could erode the value of these bonds, as seen in the fund's recent performance: a 3-month return of -1.52% based on market price, despite a modest annual gain of +1.54%SCHQ | Schwab Long-Term U.S. Treasury ETF | Schwab Asset …, [https://www.schwabassetmanagement.com/products/schq]^[4]. This volatility highlights the tension between yield capture and duration risk, a tension exacerbated by the U.S. Treasury's growing reliance on debt issuance to fund deficits.

A Steepening Yield Curve and Fiscal Uncertainty

The U.S. yield curve has steepened in 2025, reflecting a complex interplay of factors. According to a report by State Street, this steepening is driven by rising fiscal deficits, increased debt issuance, and geopolitical uncertaintyBond market shifts signal waning US advantage | State Street, [https://www.ssga.com/us/en/institutional/insights/mind-on-the-market-15-september-2025]^[5]. Investors are pricing in a steeper curve as they anticipate both Federal Reserve easing and persistent fiscal strain. For example, the spread between short-term and long-term yields could widen by 30 basis points by year-end, as investors demand higher compensation for holding long-dated U.S. debt amid concerns over fiscal sustainabilityEvaluating a changing US yield curve and its implications, [https://www.lombardodier.com/contents/corporate-news/investment-insights/2024/september/evaluating-a-changing-us-yield-c.html]^[6].

This dynamic is not unique to the U.S. Similar patterns are emerging in other developed markets, signaling a return to more “normal” yield curve dynamics after years of accommodative monetary policy. However, the U.S. context is complicated by policy uncertainties, including the potential erosion of the perceived “exceptionalism” of U.S. markets and the geopolitical implications of an “America First” policy stanceBond market shifts signal waning US advantage | State Street, [https://www.ssga.com/us/en/institutional/insights/mind-on-the-market-15-september-2025]^[5].

Fiscal Sustainability and the Dollar's Resilience

While the U.S. has unique advantages—such as the dollar's role as a global reserve currency and the liquidity of its bond market—these may not be sufficient to insulate the market from a reassessment of term premiums. Goldman Sachs notes that U.S. deficits, currently around 6% of GDP, are beginning to influence the prices of longer-maturity government bondsHow US Fiscal Concerns Are Affecting Bonds, …, [https://www.goldmansachs.com/insights/articles/how-us-fiscal-concerns-are-affecting-bonds-currencies-stocks]^[7]. Investors are increasingly demanding higher risk premiums, a trend mirrored in fiscal profligacy in countries like Japan, France, and the U.K.

The long-term outlook is sobering. Forecasts suggest that interest payments on U.S. debt could exceed a third of government revenue by 2050, raising questions about the sustainability of the current fiscal pathWhat happens if U.S. debt becomes unsustainable? - Capital Group, [https://www.capitalgroup.com/institutional/insights/articles/us-debt-sustainability.html?msockid=2649a014db4163af22bdb67dda4a627a]^[8]. For SCHQ, this means that while the fund's long-duration bonds offer attractive yields today, the risk of a reassessment of U.S. creditworthiness—however remote—could lead to sharper price declines in the future.

Navigating the High-Debt World

For investors, SCHQ represents a calculated bet on the resilience of U.S. Treasuries in a high-debt world. The fund's performance over the past year, with a 1.54% gain, suggests that its long-duration strategy has held up despite fiscal headwindsSCHQ | Schwab Long-Term U.S. Treasury ETF | Schwab Asset …, [https://www.schwabassetmanagement.com/products/schq]^[4]. However, the recent quarterly dip underscores the importance of balancing yield capture with risk management.

The key to success lies in understanding the interplay between monetary and fiscal policy. While the Federal Reserve's easing cycle may provide a temporary tailwind for long-duration assets, the broader fiscal challenges—rising deficits, inflationary pressures, and geopolitical risks—pose a longer-term drag. Investors must weigh these factors carefully, particularly as the U.S. Treasury's reliance on debt issuance continues to grow.

Conclusion

SCHQ's role as a long-duration engine in a high-debt world is both compelling and precarious. The fund's exposure to U.S. Treasuries offers a hedge against a fragmented global bond market, but its sensitivity to interest rates and fiscal sustainability risks cannot be ignored. As the U.S. debt burden continues to rise, investors must remain vigilant, balancing the allure of higher yields with the realities of a fiscal landscape that is increasingly fraught. In this environment, SCHQ remains a critical tool for those seeking to navigate the delicate dance between duration risk and yield capture—but only for those prepared to accept the inherent uncertainties.