Moody's chief economist warns early signs of debt stress as Treasury yields jump

Moody’s chief economist Mark Zandi warned that the U.S. Treasury market is beginning to feel pressure, citing a roughly one-percentage-point rise in the 10-year yield this year, among the steepest in major economies. He tied the surge to a $2 trillion fiscal deficit for the year ending in October, noting that interest payments alone represent more than half of that gap. Zandi warned of a vicious cycle where higher borrowing costs increase debt service, which in turn pushes rates higher.

Although other nations are also seeing rising sovereign yields, he argued the U.S. situation is especially critical because Treasuries serve as the global benchmark. The IMF recently highlighted sharp increases in long-term yields across the G7, and Treasury Secretary Scott Bessent said that uniquely high U.S. yields would be concerning only if they are not part of this broader trend. Other analysts, including Ray Dalio and Kent Smetters, have offered divergent scenarios ranging from an economic “heart attack” to inflation-driven resolution.