European investors pull back from U.S. Treasuries as yields hit 5%

The U.S. national debt has crossed $40 trillion, a milestone that arrived as Treasury yields hover near their highest levels since 2007 and the Federal Reserve delivers its first interest rate hike in more than three years — reshaping the borrowing landscape for the government, consumers, and businesses alike.

Rising Yields and a Fed Rate Hike

The 10-year Treasury yield touched 5% on September 14 for the first time since October 2023, driven by a mix of inflation concerns, elevated government borrowing, and surging energy costs. Days later, on September 16, the Federal Open Market Committee voted unanimously to raise its benchmark rate by a quarter point to a target range of 3.75% to 4%, citing "elevated" inflation and solid economic activity.tradingeconomics+3

As of September 3, total gross national debt stood at $40.10 trillion — $2.67 trillion higher than a year ago, according to the Joint Economic Committee of the U.S. Senate. The figure amounts to roughly $117,000 per American. Through August, the federal government had already spent $1 trillion on interest payments this fiscal year, surpassing both defense spending and Medicare to become the second-largest category of federal expenditure after Social Security.washingtonexaminer+2

Global Investors Reassess U.S. Debt

The debt milestone and climbing yields are prompting a reassessment abroad. Norway's sovereign wealth fund, managed by Norges Bank Investment Management, proposed earlier this month reducing the weighting of U.S. government bonds in its benchmark to 21.9% from 34.1%. James Turner, head of global fixed income for EMEA at BlackRock ↗ 0.70%, recently told the Financial Times News Corp ↘ 0.03% that government bonds were "not as risk-free as they used to be".english.news

Swisscanto Asset Management said it was cutting exposure to long-dated Treasuries, while British wealth manager Brown Shipley maintained a tactical underweight position, citing higher energy prices and persistent geopolitical uncertainty. BNP Paribas Wealth Management said it maintained a 12-month target of 4.50% for the 10-year yield but acknowledged yields could temporarily approach 5%.english.news

The share of dollars held in central bank reserves has fallen to 56% at the end of 2025 from 64% in 2015, according to the New York Times. Gold prices have exceeded $5,000 per troy ounce for the first time as central banks stock up amid global uncertainty.dtnext

A Two-Speed Economy

The rate hike underscores what analysts describe as an economy moving at two speeds. The AI investment boom continues largely unaffected by higher borrowing costs, with Fed Chairman Kevin Warsh noting in August that more than half of recent capital-spending growth could be attributed to AI buildout. Meanwhile, the housing market faces mounting pressure from mortgage rates near 7%, reinforcing a "lock-in" effect that keeps millions of homeowners in place.kiowacountypress

Banks, too, are feeling the strain. As Marketplace reported, rising yields have eroded the value of existing Treasury holdings on bank balance sheets, leading some lenders to weigh whether making loans still makes sense compared with buying higher-yielding government debt. David Rubenstein, co-founder of the Carlyle Group ↘ 0.65%, warned on September 15 that the escalating debt posed a threat to national security as annual interest payments now exceed defense spending.marketplace+1

The Congressional Budget Office projects net interest costs will surpass $1 trillion for fiscal 2026 and more than double to $2.1 trillion by 2036.washingtonexaminer