The recent backup in yields is happening at an unfortunate time. In nominal terms, debt held by the public is at an all-time high (approximately $14.3 trillion). As a % of GDP, debt held by the public is at the highest level going all the way back to 1962 (76.6%). The estimated term premium for 6-year government bonds (or a close approximation for the 70-month average maturity length of government bonds) has also increased from -70 bps on 7/8/2016 to 4 bps as of Friday. Toss in the fact that the average maturity of treasury debt has increased from 49 months on 12/31/2008 to 70 months as of 9/30/2016 and this all adds up to a situation where it is becoming much more expensive for the US government to finance its budget deficit. This is worrisome with the prospect of larger US deficits on the horizon.

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