The New Shape of Risk: Treasury Yields, a $36 Trillion Debt Load, and How Trade Policy Could Tilt the Curve
On August 7, 2025, the U.S. Treasury 10-year yield closed near 4.23% while the three‑month bill yielded about 4.32%, leaving the very front of the curve still fractionally inverted even as the 2‑to‑10‑year spread has turned positive. That kinked profile underscores a hinge moment for U.S. rates: policy is easing from last year’s peak, but term premiums and fiscal arithmetic are anchoring longer maturities higher. Federal debt stood around $36.2 trillion as of January 1, 2025, according to Federal Reserve Economic Data (FRED), while nominal GDP ran near a $30.3 trillion annualized pace in the second quarter, a combination that keeps debt sustainability and term premium in focus. With the unemployment rate at 4.2% in July and the effective fed funds rate averaging 4.33% in recent months, the macro picture is neither stagflationary nor fully benign. UBS argues that proposed tariff hikes are an “escalate‑to‑de‑escalate” tactic likely to settle at an effective rate near 15%, nudging inflation only modestly higher and leaving risk assets supported. However, this raises questions about how trade policy noise and persistent deficits interact with the yield curve—and whether markets are underpricing the cost of rolling the nation’s debt at today’s coupon levels.