Why U.S. borrowing costs keep climbing despite Treasury’s efforts

UNITED STATES, JAPAN, MEXICO, BRAZIL, EUROPE (FRANCE, UNITED KINGDOM), NEW YORK, 13 OCTOBER 2026 —

A sell‑off in the United States Treasury market has pushed long‑term borrowing costs to levels not seen in almost twenty years, prompting the Trump administration to launch two unprecedented interventions that have failed to curb yields.

The rise in U.S. yields, now at a nineteen‑year high of 5.36 percent on the 30‑year Treasury, is being felt worldwide as the U.S. Treasury market sets the benchmark for global fixed‑income markets.

The Treasury’s first intervention, announced on 31 July, coordinated with the Japanese Ministry of Finance to support the yen against the dollar without selling U.S. Treasuries. The Federal Reserve Bank of New York, acting on Treasury’s behalf, bought yen with euros from the Exchange Stabilization Fund.

Treasury also encouraged Japan to use the Fed’s Foreign and International Monetary Authorities (FIMA) repo facility, allowing Japan to borrow dollars against Treasury securities held at the New York Fed. The aim was to enable Japan to acquire dollars to buy yen without resorting to Treasury sales, which would have pushed U.S. long‑term rates higher. The intervention lifted the yen from ¥164 to ¥155 per dollar.

However, a month later Japan disclosed that it had spent roughly $99 billion on intervention between 30 July and 25 August, while the reported value of its foreign‑securities reserves fell by a comparable $88 billion. Although the reserve figures do not identify which securities Japan sold—and partly reflect valuation changes—they strongly suggest that it financed much of the intervention by liquidating Treasuries rather than using the FIMA facility.

Treasury’s use of foreign‑financial coordination to prevent bond sales therefore appears to have been unsuccessful.

On 19 August, Treasury pivoted to direct market intervention, announcing that it would at least double its buybacks of long‑term securities for the stated purpose of “liquidity support.” The announcement initially pushed yields down, but they quickly climbed back up. On 10 September, Treasury actually bought up $5.2 billion of long‑term Treasury securities, financed by short‑term debt sales.

This purchase represented a trivial 0.016 percent of the marketable Treasury market, and was therefore apparently meant merely to shock markets into believing that more would come if long rates did not fall. It too failed: rates did not fall.

The two failed interventions illustrate that the U.S. Treasury market is now so vast that only fundamental changes in the supply of, and demand for, U.S. debt can durably lower interest rates. Ad‑hoc government gimmickry merely burns credibility. Changes that would make a meaningful difference include a falling fiscal deficit, lower inflation, lower AI infrastructure borrowing, and less aggressive U.S. financial sanctions—which encourage de‑dollarisation. None of these appears to be on the horizon.

The rise in U.S. yields is being felt globally. In Mexico, whose economy is deeply entwined with the United States, government bonds have closely tracked U.S. peers in the last month. In Brazil, where investors are focused on a heated election and its implications for economic policy, U.S. Treasury trends have been a secondary influence on Brazilian debt markets. In Europe, government bond yields have generally risen alongside U.S.

peers, but higher yields in countries such as France and the United Kingdom also reflect domestic challenges. Large and growing budget deficits are raising concerns over demand meeting rising bond supply. At the same time, politicians who try to encourage even a modicum of fiscal austerity face an uphill battle to win over voters who are increasingly looking for government help to address affordability concerns.

The U.S. Treasury market dominates and sets the tone for global bond markets directionally, but the degree of contagion will vary widely. The United States can use intervention to slow the pace of these moves, but without changes in underlying fundamentals, such as growth or fiscal policy, the direction of yields still appears biased higher.

The capital‑intensive nature of artificial intelligence (AI) is also contributing to higher borrowing costs. Goldman Sachs estimates that U.S. AI‑related capital expenditure this year is $581 billion, with the global figure standing at $1 trillion. In the United States, that $581 billion represents 1.8 percent of GDP, with Goldman predicting that the share will rise to 2.8 percent of GDP by 2028.

Studies of government finances suggest that borrowing an additional 1 percent of GDP pushes up long‑term borrowing costs by 20–30 basis points. The shift from the software‑driven growth of the 2010s to the capital‑heavy AI era has reversed the low‑interest‑rate environment that once characterised the global economy.

Higher oil prices, since the start of the Iran war, have also added to the pressure on U.S. borrowing costs. The combination of resilient growth, uncomfortably high inflation rates, tightening monetary policy, and questions over bond demand versus growing supply has driven yields higher despite Treasury’s actions, which include significantly larger buybacks of longer‑dated Treasury bonds through early November.

The Treasury’s recent efforts to calm bond markets, and ideally bring U.S. Treasury yields lower, have not yet worked for one simple reason: fundamentals are overpowering. Against a backdrop of resilient growth, uncomfortably high inflation rates, tightening monetary policy, and questions over bond demand versus growing supply, yields have marched higher despite the Treasury’s actions. The U.S.

Treasury market dominates and sets the tone for global bond markets directionally, but the degree of contagion will vary widely. The United States can use intervention to slow the pace of these moves, but without changes in underlying fundamentals, such as growth or fiscal policy, the direction of yields still appears biased higher.