An uncomfortable truth about the bond market drama unfolding right now is that almost nobody actually understands it. So don’t feel bad if that includes you. Ask five economists why the 10-year Treasury yield just hit its highest level since 2007, and you’ll get five different answers. That’s not a knock on economists; it’s just how bond markets work. It’s a tangled web of expectations about growth, inflation, currency risk, and global capital flows that even the people paid to understand it for a living argue about constantly.
But there’s a part that isn’t complicated, the part that doesn’t require a PhD or a Bloomberg terminal to understand. Congress spends more money than it takes in, by a lot, and it shows little interest in stopping. This problem has grown steadily worse and is now compounded by the rising cost of borrowing.
The Federal Reserve just raised interest rates a quarter point to a range of 3.75%-4% and signaled that at least one more hike is likely before year’s end. That was largely in response to inflation stoked by tariffs, oil price shocks and the war with Iran. The idea is to make borrowing more expensive so households and businesses spend less, slowing the rise in prices. The Fed directly controls the federal funds rate – which is the interest rate banks use to lend each other funds overnight – but its decisions also influence longer-term borrowing costs. A hike, especially with another one likely, tells investors to expect rates to stay higher for longer, which can push up 10-year Treasury yields.
The 10-year Treasury yield, which sets the tone for mortgage rates and much of consumer borrowing, is now sitting near 5%. There’s nothing magical about 5%. What matters is how much more expensive borrowing becomes when rates rise, for everyone. The average 30-year mortgage rate climbed to 7.03% this week, adding roughly $190 to the monthly payment on a $400,000 loan compared with a year ago.
The federal government is a borrower too. Higher yields mean the government’s borrowing costs are climbing. Net interest payments on the national debt have already topped $1 trillion for the first 11 months of fiscal year 2026, exceeding what Washington spends on national defense. The Congressional Budget Office (CBO) projects that the annual interest tab will reach roughly $2.1 trillion within a decade. This is the “easy to understand” part. If you have a huge credit card bill, say $40 trillion (total federal debt), and rates go up, it’s going to cost you.
This week, the Yale Budget Lab released a new federal deficit-management tracker. It shows that from the 1980s through 2004, whenever CBO projected that debt-to-GDP was rising, lawmakers would respond with modest, incremental fixes, including spending cuts or revenue changes averaging around half a percentage point of GDP. But for the past 20 years, Congress has largely abandoned that pattern of self-correction. The tracker identifies last year’s GOP tax law as the single biggest break from the old pattern. Instead of the roughly half-point-of-GDP correction that historical practice would have predicted, the law added about 1.5 percentage points of GDP to the deficit, a swing of roughly 2 points of GDP from where Congress “should” have landed based on 40 years of precedent.
Add war-driven energy costs and a growing interest bill, and we’re deep in a hole largely of our own making. So, now what?
Back in June, a bipartisan foursome, Reps. Steve Womack (R-AR), Ed Case (D-HI), Bill Huizenga (R-MI), and Scott Peters (D-CA), all members of the Bipartisan Fiscal Forum, introduced H.R. 9452, the Budgeting for a Better America Act. It’s not a deficit-reduction bill in the sense of cutting specific programs. It’s more of a plumbing bill meant to fix the leaky pipes Congress uses to put its budget together.
The bill’s two biggest pieces:
Biennial budgeting. Instead of trying (and mostly failing) to pass a budget resolution every single year, Congress would adopt one budget resolution covering a full two-year cycle, due by May 1 of odd-numbered years. Annual appropriations bills and reconciliation would stay in place, but the topline numbers would be set for both years. That would leave more room in the second year of each Congress for oversight, authorizations, and, at least in theory, actually reviewing whether federal programs work.
A new fiscal commission. The bill creates an 18-member National Commission on Fiscal Responsibility and Reform, composed of six presidential appointees split evenly by party, plus three House and three Senate members from each party. It would have one year to develop recommendations for getting the annual deficit down to 3% of GDP within a decade. The bill also mandates a CBO briefing on debt and deficits for incoming freshmen, a requirement that the president submit preliminary budget data by December 1 so Congress can get started earlier, and an annual televised hearing with the Comptroller General on the government’s long-term fiscal health.
For all the complexity of the bond market, Congress’s contribution to the problem is clear. Its pattern of irresponsible budgeting has steadily worsened our fiscal outlook. The ethos of grabbing everything you can while in power, exemplified by the abuse of the budget reconciliation process to sideline the minority, has led us here. The question now is whether we can find our way back before a genuine fiscal crisis forces decisions far more painful than the ones Congress keeps avoiding.
