Renowned economist Mohamed El‑Erian warns that the surge in US Treasury yields is not an ordinary bond sell‑off, but may signal a deeper structural shift in the US economy. This change could make the United States “more expensive” and bring broader, longer‑lasting global repercussions.

    In his latest commentary, the former PIMCO chief executive stated that if bond‑selling pressure peRSIsts, current conditions may mark “the start of a structural economic shift more enduring and with greater global consequences than most market swings.”

    30‑Year Treasury Yield Rises to 5.27%

    Even though the US Treasury has announced lifting long‑term Treasury buybacks to $4 billion, market selling has not eased meaningfully. The 30‑year US Treasury yield has climbed to 5.27%, a level El‑Erian notes has not been seen since 2007. The 10‑year and 5‑year Treasury yields have reached 4.736% and 4.426% respectively.

    With US national debt exceeding $40 trillion, such high yields mean government borrowing costs are rising rapidly. According to El‑Erian, this shift will not only add fiscal pressure but make financing across the whole US economy more costly.

    Interest Payments Nearing the Core of Fiscal Concerns

    Latest figures from the Congressional Budget Office (CBO) show net interest payments on US public debt are projected to hit $963 billion in fiscal year 2026. Second only to social security outlays, interest will become the federal government’s second‑largest annual expenditure.

    El‑Erian points out that an increASIng share of federal revenue will go toward debt‑interest servicing, approaching 20 % of total receipts, squeezing funding for defence, healthcare and other programmes. He warns that further deterioration would pose “considerable risks” to overall US well‑being.

    Inflation Is Not the Real Driver

    Unlike previous episodes of spiking bond yields, El‑Erian argues runaway inflation is not the core driver. Instead, real yields are rising: the inflation‑adjusted extra compensation investors demand for holding debt in a more volatile global environment.

    He says this is one reason the current market backdrop is “disturbing”. Higher yields reflect not merely shifting inflation expectations, but investors re‑pricing risk, volatility and long‑term fiscal sustainability.

    AI Financing Demand Boosts Bond Supply

    El‑Erian also notes that hyperscale cloud providers are raising massive capital to build AI data centres, adding strain to bond markets. Citing Goldman Sachs data, he writes these large tech firms have issued nearly $500 billion in bonds this year and may borrow at least another $300 billion before year‑end.

    Long‑term interest rates may stay under pressure amid high fiscal deficits, expanding Treasury supply and concurrent financing needs from tech giants. El‑Erian’s assessment suggests bond‑market moves are no longer just an interest‑rate‑cycle story; they risk becoming a broader shock to US fiscal health, corporate funding and asset‑pricing systems.