U.S. Long-Term Treasury Yield Premium Hits Ten-Year High

On October 9, U.S. long-term Treasury yields continued to rise, shifting market focus to the yield premium. The New York Fed model shows that the yield premium on 10-year U.S. Treasuries has increased by about 40 basis points since mid-September, reaching 0.98%, the highest level since 2014; during the same period, the yield on 10-year Treasuries rose by about 30 basis points. Another model indicates that the yield premium has risen to 1.08%, the highest level since 2010. The yield premium reflects the additional return that investors demand for bearing uncertainties such as long-term inflation and fiscal risks. Analysts point out that the rise in long-term yields may no longer be solely driven by expectations of Federal Reserve policy, but rather reflects investors' demand for higher risk compensation for long-term Treasuries. The U.S. annual fiscal deficit is approximately $2 trillion, with the government continuously issuing Treasuries; at the same time, the construction of AI infrastructure has prompted tech giants to increase debt financing, with Alphabet, Amazon, Meta, Microsoft, and Oracle issuing about $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 may further drive up financing costs. If the yield premium continues to rise, even if the Federal Reserve pauses interest rate hikes or lowers future rate expectations, long-term Treasury yields may not significantly decline, thereby exerting ongoing pressure on mortgage rates, corporate loans, and economic activity. Analysts believe that fiscal expansion, increased debt supply, and geopolitical uncertainties may indicate a structural change in the environment of persistently low long-term rates.

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