The global bond market is experiencing a new round of intense selling.
On September 2, the yield on the 10-year US Treasury note rose to around 4.81%, nearing its highest level in three years; the 30-year US Treasury yield broke through 5.28%, remaining at its highest level in nearly 20 years.
On the same day, Japan's 10-year government bond yield broke through 3%, hitting a new 30-year high, while 10-year government bond yields in Australia and Germany also refreshed their 15-year highs.
On the previous day, the yield on 30-year UK government bonds rose to as high as 5.9% during trading, the highest level since 1998.
"This is not cyclical, but a return to normal," said Kenneth Rogoff, who just attended and spoke at the 2026 Jackson Hole Global Central Banking Conference, in an exclusive interview with NBD.
As one of the most influential economists in the world in terms of researching sovereign debt, financial crises, and the international monetary system, Kenneth Rogoff has served as the IMF's Chief Economist and is currently a professor of international economics at Harvard University. He co-authored "This Time is Different: Eight Centuries of Financial Folly" with Carmen Reinhart, the former Chief Economist of the World Bank, which systematically sorts through the 800-year history of debt and financial crises in 66 countries, becoming a classic in the field.
Photo of Kenneth Rogoff, source: provided by the interviewee
In Kenneth Rogoff's view, what's truly worth reflecting on is not just why the 30-year US Treasury yield has broken through 5%, but the collective judgment of the economics community over the past decade or so on the "era of ultra-low interest rates".
He criticized the claims of Nobel laureate Paul Krugman, who has repeatedly asserted that "debt is our friend," arguing there is little need to worry about government debt.
Against the backdrop of 65 consecutive months of US inflation exceeding the 2% target, expectations of a US Federal Reserve rate hike have intensified, prompting Trump to again call for a rate cut. In response, Kenneth Rogoff believes the Fed has almost no control over real interest rates, and the US Treasury's attempts to suppress yields by buying back US debt not only are ineffective but also mask the unsustainable reality of US fiscal policy.
This Round of Sovereign Bond Yield Surge Not Cyclical
Interest Rates Return to Normal
NBD: Recently, the 30-year US Treasury yield rose to over 5.3%, reaching its highest level since 2007. How do you interpret this round of rapid increases in long-term US Treasury yields?
Kenneth Rogoff says there are many factors driving up interest rates, including an unprecedented artificial intelligence (AI) construction boom, geopolitical fragmentation, conflicts in Ukraine and Iran, and the rise of global populism, as well as the significant increase in global debt.
However, the most important single factor is the actual interest rate, or the interest rate adjusted for inflation expectations, returning to normal levels.
After the 2008 global financial crisis, real interest rates plummeted. This is because real interest rates are ultimately determined by the supply and demand of global savings and investment. Following 2008-2009, investors became cautious, savers more prudent, and regulators overly active, but these factors would eventually dissipate.
In fact, the prolonged periods of ultra-low and ultra-high interest rates have recurred over the past few centuries, and interest rates will inevitably revert to the mean. Without the COVID-19 pandemic, this normalization process might have occurred even earlier.
For those who claim that this round of interest rate hikes is entirely due to the productivity boom brought about by AI, I would like to point out that real interest rates and nominal interest rates have risen significantly as early as three years ago, when the scale of AI investment was nowhere near as large as it is today.
NBD: US federal debt has recently exceeded $40 trillion. Why has US federal debt grown so rapidly in recent years?
Kenneth Rogoff: The global financial crisis and the COVID-19 pandemic are common factors that have contributed to a large part of the debt growth.
However, the bigger issue is that regardless of which party is in power, none have shown any willingness to rein in the fiscal deficit.
Huge fiscal deficits emerged during Trump's first term, and the Biden administration is no exception. Additionally, Trump introduced a massive new round of tax cuts. Now, the US fiscal deficit may exceed 6% of GDP, a staggering level in peacetime.
Currently, US military spending is even lower than the government's debt interest expenditure. In the future, US military spending will definitely continue to increase, and this trend is unlikely to change even if the Democratic Party wins the election in 2028.
Another issue is that as interest rates return to normal, debt servicing costs, or the interest the government pays on its debt, are surging.
US Government, Central Bank, and Top Economists
Excessive Indulgence in Ultra-Low Interest Rate Environment
NBD: Currently, we are seeing two trends: a rapid increase in debt burdens and a rise in long-term US Treasury yields. How should we understand the relationship between these two?
Kenneth Rogoff: What we are seeing now is more the result of interest rate normalization leading to an increase in debt servicing costs.
The rise in debt levels in the US and globally is certainly one factor driving up interest rates, but it is by no means the only factor.
It is astonishing that the US government, central banks, and some top economists were so enamored with the ultra-low interest rate environment of the 2010s. Many top economists and influential economic commentators even convinced themselves that "this time is different". They believed that factors such as demographic structures, inequality, and low productivity growth would keep interest rates low for an extended period in the future.
Nobel laureate Paul Krugman, who has written dozens of influential columns for the New York Times, has claimed that "debt is our friend" and that people almost never need to worry about government debt.
Former IMF Chief Economist Olivier Blanchard also made a similar argument, that economic growth can sustainably outpace interest expenses, and therefore there is nothing to worry about.
Perhaps the most influential viewpoint is the "secular stagnation" theory of former US Treasury Secretary and former Harvard University President Lawrence Summers, which posits that if governments do not take on massive amounts of new debt each year, global interest rates will remain at extremely low levels and economic growth will be very slow.
The US Federal Reserve Has Little Long-Term Control Over Real Yields
As of July 2026, the US PCE price index has been above the Federal Reserve's 2% long-term inflation target for 65 consecutive months. At the Jackson Hole annual meeting on August 28, Federal Reserve Chairman Kevin Warsh stated that if policymakers cannot confirm inflation is falling back to the 2% target range, the Fed must take corresponding policy actions. Subsequently, US President Trump said on August 31, "In my view, we should have the lowest interest rates in the world, and far lower than other countries."
NBD: The trend between the US Federal Reserve's policy interest rate and long-term US Treasury yields is becoming increasingly divergent, raising questions about whether the Fed is losing its influence over long-term financing costs.
Kenneth Rogoff: Long-term interest rates are primarily composed of two parts: one part is the real interest rate, which is the yield after excluding inflation expectations; the other part is the expected inflation rate.
Inflation expectations have indeed risen, but the vast majority of the change is coming from real yields, over which the Fed has very little long-term control.
On the other hand, fiscal policy has a significant impact on the savings-investment balance that determines global real interest rates.
However, as mentioned earlier, many other factors are also at play, including war and AI.
NBD: Even if the Federal Reserve cuts interest rates, it may not lead to a decline in long-term US Treasury yields, what does this mean for monetary policy?
Kenneth Rogoff says that given inflation expectations are still reasonably well-anchored, if the inflation trend itself is not sufficient to support a rate cut, then a Federal Reserve rate cut would actually push up long-term yields.
If the US government wants to lower long-term bond yields, it needs to try to introduce a more credible fiscal consolidation plan, rather than just telling people that economic growth will solve all problems - as the US Treasury Secretary has repeatedly claimed.
The US Department of the Treasury has recently expanded its repurchase operations for longer-term government bonds.
Kenneth Rogoff: Repurchase operations can have some effect by reducing the supply of long-term government bonds, but the impact will not be significant due to the numerous factors influencing long-term interest rates.
Unfortunately, the buyback will have the effect of shortening the term structure of US government debt, making the US government more vulnerable to rising interest rates.
The National Business Daily: In the long term, can the US Treasury's intervention measures change the price discovery mechanism of the US Treasury bond market, or bring new financial risks?
Kenneth Rogoff: Yes, buybacks and other such gimmicks will interfere with price discovery and to some extent mask the unsustainable reality of US fiscal policy, making it particularly easy for politicians to misperceive this.
The NBD asks: Do you think there is a risk of a "debt increase - interest rate hike self-reinforcing cycle" in the United States?
Kenneth Rogoff says the risk lies in the fact that, with high interest rates, high debt, and political gridlock all present at the same time, the US's resilience in the face of major shocks has decreased.
The US may be forced to rely on financial repression and inflation, and possibly even partial defaults - an idea that was floated early in the Trump administration. This, in turn, would accelerate the decline of the dollar's dominance.