Can the US Defy Fiscal Gravity?

Summary

David Bianco of DWS argues that long-term Treasury yields and real rates are at nearly 25-year highs mainly because of structural U.S. deficits and domestic funding needs, not inflation. He sees tech as least at risk from higher yields while bond substitutes would suffer if the 10-year yield reaches 4.75%. Robin Brooks and Sigrid Kaag add that the dollar's safe-haven status and exorbitant privilege have muted market discipline despite fiscal dangers.

• Long-term Treasury yields and real rates hit about 25-year highs.
• David Bianco attributes high real yields to deficits above 6% of GDP and a shift toward domestic funding.
• He criticizes Treasury Secretary Bessent's long-end jawboning as ineffective and potentially dollar-negative.
• A 10-year Treasury yield above 4.75% could rotate investors away from staples, REITs, and telecoms.
• Tech is viewed as least at risk because AI data-center returns dominate cost of capital concerns.
• Robin Brooks says U.S. safe-haven status remains more secure than expected, supporting the dollar and Treasuries.
• Sigrid Kaag warns U.S. debt is humongous and too big to fail, with global spillover risk.