What's Behind the Big Surge in US Government Bond Yields | Odd Lots

Rising long-term bond yields reflect the massive, persistent volume of U.S. Treasury issuance rather than purely inflationary pressures. Stanford finance professor Darrell Duffie explains that discretionary investors, such as pension funds and insurers, require higher yield compensation to absorb this growing supply, especially as foreign central bank demand plateaus. While Treasury buyback programs aim to improve market liquidity and signal policy intent, their ability to control yields remains constrained by the sheer scale of the debt market. Furthermore, the Federal Reserve faces significant structural hurdles in shrinking its balance sheet, as commercial banks have become reliant on reserves for liquidity regulations. This environment creates a complex interplay between fiscal deficits, debt management, and the central bank’s efforts to maintain market stability without resorting to yield curve control or fiscal dominance.