Robin Brooks says soaring U.S. debt and deficits are driving up bond yields

The recent stock market selloff exposed Wall Street's true fears about the scale of U.S. borrowing, according to a top economist. The 10-year Treasury yield recently hit a 24-year high above 5%, according to Fortune. There had been competing theories on whether tech companies borrowing for artificial intelligence or mounting federal debt was pushing up yields.

Robin Brooks, a senior fellow at the Brookings Institution, a public policy research group, said the market drop served as a natural experiment settling the debate. Some analysts argued that heavy corporate borrowing for AI infrastructure crowded out government bonds and forced the Treasury to offer higher returns.

But Brooks pointed out that public borrowing is historically high while corporate borrowing remains far below past tech bubble levels. He noted that the market-implied yield for a 10-year security 10 years from now stayed elevated during the stock drop, showing investors demand a higher risk premium for holding long-term government debt.

The Treasury Department reported that the federal budget deficit widened to $1.99 trillion for fiscal year 2026, with gross interest costs on the $40 trillion national debt reaching $1.36 trillion. When government borrowing surges like this, the cost ripples through the entire economy.

Higher yields on government bonds pull up interest rates across the board, making it more expensive for businesses to borrow for equipment or real estate, and raising rates on mortgages and commercial loans. When Uncle Sam borrows trillions, your own line of credit feels the pinch.

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