Treasury bonds aren’t the safe haven they’ve been in the past — and taxpayers will pay a price

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If you’re worried that U.S. Treasury bonds may lose their safe-haven status in the wake of President Donald Trump’s assault on the Federal Reserve’s independence, you’re right.

In fact, investors have been losing faith in Treasurys for years. This puts the Federal Reserve’s policy meeting scheduled for later this month into a historical context.

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These are the implications of a study that the National Bureau of Economic Research recently began circulating in academic circles. Entitled “Convenience Lost,” the paper examines Treasury bonds’ yield advantage relative to the presumed risk-free rate — the so-called convenience yield.

The convenience yield that existed in prior decades traced to the “safety, liquidity and regulatory advantages” that Treasurys enjoyed relative to other safe assets, as the report puts it. In other words, investors were willing to accept a lower yield with U.S. Treasurys in return for the unsurpassed assurance of being paid back.

Not only did the authors of the NBER study find that this yield advantage has narrowed but that in recent years it’s become a disadvantage: Treasury yields are now higher than the risk-free rate. This has huge implications for where investors will park their cash during a next global flight to safety.

To calculate the convenience yield, the study’s authors measured the difference between Treasury yields and the SOFR swap rates of similar maturities. A swap rate is the fixed rate paid to a counterparty in return for receiving a variable rate. SOFR is the Secured Overnight Finance Rate. SOFR swap rates are often considered the risk-free rates.-

As you can see from the chart above, the convenience yield at the 10-year maturity has been steadily declining since the mid-1990s. It was above a percentage point at the beginning of this century, and but for a brief spike during the global financial crisis it has hovered around zero for two decades. It’s been consistently negative since 2022 and currently stands at around minus 0.25 of a percentage point.

Negative consequences

The negative convenience yield will prove to be extremely costly for the U.S. government. U.S. Treasurys’ yield advantage in prior decades was worth hundreds of billions of dollars in lower interest-payment costs. The negative convenience yield, conversely, will lead to hundreds of billions of additional interest payments in coming years.

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The primary culprit in the convenience yield’s disappearance is that U.S. government debt is growing faster than GDP, the study found. America’s debt-to-GDP ratio has grown from around 30% in 2000 to around 100% today. Upon analyzing the historical data, the report’s authors calculate that “an increase in the supply of long-term [U.S. government] debt by 5 percent of GDP results in a 0.94 percentage point decline in convenience yields at the 10-year horizon.”

To put this result in context, consider how much the U.S. government’s recently passed One Big Beautiful Bill Act will increase U.S. government debt. According to estimates from the nonpartisan Congressional Budget Office, that legislation will add $4.1 trillion to government debt over the next 10 years — equivalent to 13.5% of current GDP.

It’s difficult to translate that into a precise estimate of the additional borrowing costs this entails, since it depends on the maturities of the bonds that the U.S. Treasury sells to finance the debt. But if the additional debt created by the One Big Beautiful Bill is financed with 10-year or longer-dated Treasurys, the legislation could eventually increase U.S. government interest costs by 2.5 percentage points.

Total federal government debt already stands at $37 trillion. It won’t take long for the increase in borrowing costs alone to exceed the cost of Trump’s signature legislation.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

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