The 30-year Treasury yield recently climbed above 5.3%, a level not seen since 2007. The 10-year hit roughly 4.8%. For America’s weakest borrowers, that combination is starting to feel less like a headwind and more like a wall.
What’s driving the sell-off
Three forces are converging to push Treasury yields higher. First, there’s supply. The US national debt exceeded $40 trillion in August 2026, and the government keeps issuing bonds to fund significant fiscal deficits. Second, foreign demand is shrinking. China’s Treasury holdings fell to approximately $651 billion as of spring 2026, the lowest since 2008. Third, corporate America is competing for the same pool of investor dollars. Hyperscalers and major tech firms have issued over $219 billion in corporate bonds so far in 2026, largely to fund AI infrastructure buildouts. US investment-grade corporate issuance overall is projected to hit a record of roughly $2.1 trillion this year.
The pain concentrates at the bottom
High-yield borrowers, particularly those in the weakest CCC-rated tier, are watching their yields and spreads widen as benchmark rates escalate. Default rates in high-yield markets have risen to around 2% on a par-weighted basis, including distressed exchanges. Defaults are climbing, not falling, and the underlying rate environment is making it harder for struggling companies to buy time through refinancing.
