Treasury yields are 'really, really high,' but can come down soon, Bessent's new adviser says
Context:
Global U.S. Treasury yields surged to 24-year highs, lifting borrowing costs even as central banks tighten. David Zervos, a veteran economist who is now a counselor to Treasury Secretary Scott Bessent, says real yields are very high and should retreat later, framing the move as a temporary, though painful, adjustment. He notes that ongoing rate-hike expectations from the Fed and similar moves abroad are driving the surge, with markets pricing in a likely December rate increase. He also attributes part of the pressure to AI-related corporate spending and an energy shock linked to Iran, which should ease in the near term. The overall outlook suggests yields will cool as these short-term pressures unwind, while the U.S. economy remains comparatively resilient versus peers.
Dive Deeper:
Yields on the 10-year and 30-year U.S. Treasuries climbed to 24-year highs, signaling a broad shift in the global bond market.
David Zervos, recently appointed as a counselor to Treasury Secretary Scott Bessent, argues that real yields are exceptionally high and should be able to decline in the future.
Fed funds futures show traders assigning an >82% probability of another rate hike at the December meeting, reflecting persistent expectations of higher policy rates.
Zervos points to increased corporate outlays on AI infrastructure and refers to AI as 'SI' to explain a portion of the yield pressure, calling these investments a positive sign for the economy despite short-term yield effects.
He also attributes some pressure to the energy shock from the U.S. confrontation with Iran, noting Brent crude has risen about 38% since the conflict began.
The international context mirrors the U.S., with similar rate dynamics observed in Germany, France, Italy, and Japan, though the U.S. has performed relatively well among developed markets.
Overall, the narrative frames the spike as a temporary phase with yields expected to ease as energy and policy expectations stabilize, barring a sustained shift in inflation trajectories.