American Treasury Yields – The Great Rollover: What It Means for Bond Yields and Mortgage Rates

Written on May 9th, 2025
Not enough people are talking about this…

The Massive Debt Rollover

The American bond market will be tested this year, with $9.2 trillion in US treasuries – about one-third of all marketable federal debt and nearly 30% of US GDP – coming due in 2025. When adding the projected $1.9 trillion American federal deficit, the gross required rollover (sale) of American debt is over $11 trillion.

This massive rollover (resale of debt) stems from the government’s pandemic-era reliance on short-term treasury bills (bonds), and will continue for the next 2 years.

As an aside, the Treasury sells its bonds at “fair market value,” meaning that the more supply of bonds, the lower the price of those bonds. And, the lower the price, in order to get the same return, provides for higher yields or interest rates.

Debt and Rising Costs

The US government will continue to have budget deficits for the foreseeable future and it’s expected that the debt-to-GDP ratio will be above post World War II records. And, servicing this debt is getting pricier with interest costs almost a billion dollars per year (meaning more debt having to be sold to finance the deficits).

OK, So What Does This Mean?!

If so much debt is being turned over and needing to be resold on the market, the price for this debt is expected to have negative pressures (decrease). And, when bond prices decrease, their yield, or interest rate, increases.

So we’re going to have American bonds increase rates, and typically Canadian bonds follow American bonds. Canadian bond yields will have upward pressure for years to come.

Most strategists see an increase in average bond yields well above the 2010 norms, but they expect it to be manageable. However, with so much debt rolling over every year and the pressures they exert on bond yields, any stumble in demand, or policy shock could push borrowing costs up very quickly. In short, this bond maturity wall is less of a crisis than a permanent upward tilt to US interest rates.

Break It Down Simply, Please

Since our economy and financial markets are so intertwined with the US, we are also going to have permanent upward pressure on bond yields.

I’m sad to say this but I’m expecting the average interest rate for Canadian mortgages to hover in the low fours for the next two to three years. I do not, unless there’s a huge external shock, expect rates to decrease far below 4%.

Lastly, remember, the 2010s and 2020-2022 had some of the lowest rates on record. We were coming out of the 2008 Financial Crisis in the 2010s with a decade of growth Parti-forward interest rates, and then Covid hit, allowing rates to rock bottom. But, the era of 3% rates is over. I think 4%+ is the new normal and buyers who are on the sidelines because they expect rates to decrease further may be up for a rude awakening.

Advice for Homebuyers

At this time, I’m advising people to choose the 5 year fixed over the 2 or 3 year fixed because I suspect rates could be higher in 2-3 years from where they are now.