The rise in US bond yields is producing two different readings of the national economy. Federal Reserve Chair Kevin Warsh has pointed to stronger growth, investment and competition for capital as important reasons for higher long-term yields. At the same time, large fiscal deficits, a growing debt burden and higher borrowing costs are keeping attention on the risks facing government finances.
The contrast became evident after the Federal Open Market Committee (FOMC) raised the federal funds target range by 25 basis points to 3.75%-4% on September 16. The decision was unanimous. The Fed said economic activity was expanding at a solid pace, while productivity and capital investment remained strong.
The 10-year US Treasury yield had reached 5% on September 15, according to Federal Reserve data, up from 4.83% a week earlier. The yield was still around the 5% level following the Fed meeting.
Warsh Links Higher Yields to Economic Strength
At his September 16 press conference, Warsh spoke of the bond market, putting economic activity at the centre of the move. “The surge in capital expenditures, which I referenced in my remarks, is real,” Warsh said, pointing to large technology companies raising funds and competing for capital. He also identified geopolitical developments as another factor affecting longer-term yields.
The Fed’s latest projections provide some support for that interpretation. Policymakers raised their median forecast for real GDP growth in 2026 to 2.3%, from 2.2% in June, while lowering their median unemployment forecast to 4.1% from 4.3%. At the same time, the median projection for 2026 PCE inflation increased to 3.7% from 3.6%.
Fiscal Risks Are Alarming
The other side of the debate focuses on the amount of borrowing required to finance US government spending.
The Congressional Budget Office projects a $1.9 trillion federal deficit for fiscal 2026, equivalent to 5.8% of GDP. Debt held by the public is projected at 101% of GDP this year and is expected to reach 120% by 2036 under current law. CBO also projects net interest costs of more than $1 trillion in 2026.
The latest monthly figures show the scale of the borrowing continuing. CBO estimated that the federal deficit reached $2 trillion during the first 11 months of fiscal 2026.
Higher yields matter in this context because the government must refinance maturing debt at prevailing market rates. CBO notes that interest costs are affected by both the amount of debt and the average interest rate paid on it.
That creates a different interpretation of the same bond-market move. Rising yields can reflect stronger demand for capital and expectations of stronger economic activity, as Warsh has argued. They can also increase the cost of servicing an already large stock of government debt.
CFOs Focus on What They Can Control
The fiscal and market environment is also changing how companies approach financial planning.
A new American Express survey of 999 senior finance executives across 14 countries found that 74% expect cash flow and finance management to take up more of their role this year, compared with 65% in 2025. Meanwhile, the share focusing on geopolitical and economic risk planning fell from 42% to 30%.
Working capital remains a concern, with 55% of respondents identifying growing working capital as a strategic priority. The survey also found that 82% of organisations are making significant investments in automating B2B payments.
Ruchi Sharma, Vice President, UK Commercial at American Express, said:
“Economic and geopolitical headwinds aren’t going away, but finance leaders are changing how they respond to them. CFOs have spent the past few years strengthening their ability to navigate uncertainty and are now putting greater emphasis on the areas where they can have the most direct impact – cash flow, working capital and forecasting. It’s not about ignoring external risk; it’s about building resilience by focusing on what businesses can control and improve.”
