Economic Alarm That Foreshadowed 2008 Crisis Is Blaring Again

The 30-year U.S. Treasury yield climbed to its highest level since 2007 Monday as investors grew jittery over the federal government’s fiscal crisis and the Iran war.

The yields on Treasurys rose to 5.31% as uncertainty over the end of a ceasefire between Iran and the U.S. rocked markets, with the 30-year-Treasury yield finishing at its highest rate since the lead-up to the Great Recession, according to The Wall Street Journal. Investors voiced concerns about persistent budget deficits that pushed up government borrowing costs and could lead to higher costs from everything from mortgages to credit cards.

“When it comes to longer-dated Treasury issuance, investors are increasingly focused and concerned about the growing amount of U.S. debt and America’s lack of fiscal discipline. And frequent, large-scale treasury auctions are a chance for the bond market to push back against the government’s eroding fiscal trajectory, as they demand higher yields for the auctions to clear,” Ameriprise Financial Chief Market Strategist Anthony Saglimbene said in an investor note Monday.

Oil prices rose Monday as the deadline for a peace deal between Iran and the United States was due to expire, according to CNBC. West Texas Intermediate futures increased 2.6%, finishing at $84.50 per barrel, while Global benchmark Brent crude was up 2.7% to close at $90.87 a barrel.

Following the outbreak of military operations against Iran, energy prices surged—including a 10.9% single-month jump in March—leaving annual energy costs up 14.7%, according to BLS reporting.

Because energy serves as a key input across agriculture, manufacturing, logistics and utilities, elevated crude and fuel prices rapidly spread through the supply chain. This drove up costs for groceries, transportation and home heating.

The Congressional Budget Office projected the federal government would run a $1.9 trillion deficit in fiscal year 2026, while net interest costs were expected to reach roughly $1 trillion. Over the next decade, the government was projected to spend $16.2 trillion on interest payments.

Profligate government spending prompted former Treasury Secretary Henry Paulson, the Treasury secretary during the 2007-2009 financial crisis, to warn on April 16 that the federal government needed to craft an emergency plan to address a potential crisis in the market for U.S. Treasury bonds — which investors buy and are used to fund the government’s spending deluge.

Paulson warned that as the federal government continued to rack up more debt, investors would demand higher interest rate yields to compensate them for taking on the risk of purchasing Treasury notes as the likelihood that the government could make all its payments on time declined. This in turn would cause the interest the federal government pays to finance its debt to rise, thus making insolvency more likely, a term economists have termed a “doom loop.”

“We need an emergency break-the-glass plan which is targeted and short term on the shelf, so it’s ready to go when we hit the wall,” Paulson told Bloomberg during its Wall Street Week event. “When you hit the wall and you’re trying to issue Treasurys, and the Fed is the only buyer and the prices of the Treasurys are down and interest rates are up, that’s a dangerous thing.”