Interest rates: the systemic risk thresholdUnited States 30 Year Government Bonds YieldTVC:US30YSwissquoteSince the start of military operations in the Middle East on February 28, long-term bond yields have risen sharply, particularly the long end of the yield curve. This increase in long-term interest rates is explained by a combination of fundamental factors, including rising energy prices, higher inflation, and rising inflation expectations. As the US 30-year Treasury yield has returned to its October 2023 highs, exceeding the 5% threshold, should we fear a systemic risk for the economy, the state, and corporations? Will Kevin Warsh’s Federal Reserve be forced to raise the federal funds rate or at least adopt a prolonged pause? It is important to keep the following data in mind: • The US 30-year Treasury yield has returned to its 2007 highs • The US 10-year Treasury yield is approaching 5% • Variable-rate corporate debt represents 40% of total US corporate debt • However, the systemic risk threshold has not yet been reached; it is estimated to lie closer to 6.5%–7% In this context, it is essential to clearly distinguish between a regime of elevated financial stress and a true systemic risk scenario. Historically, US bond markets can operate in a 4%–5.5% range on the 10-year yield without triggering a global crisis, provided that nominal growth remains sufficiently strong and financing flows remain functional. The current level mainly reflects a repricing of risk driven by persistent inflation, geopolitical uncertainty, and perceived deterioration in US fiscal balances. The chart below shows weekly Japanese candlesticks of the US 30-year Treasury yield. It highlights financial risk zones based on the level of the 30-year rate. The main transmission channel to the economy is not immediate but gradual. US corporations are mostly financed at fixed rates via bond markets, meaning that higher rates do not instantly affect the entire debt stock. However, marginal financing costs rise quickly with each new issuance and refinancing. The presence of around 40% variable-rate debt does accelerate transmission in certain segments, particularly small caps and companies heavily dependent on bank credit. For the federal government, the situation is also more constrained than in previous cycles. Rising long-term rates mechanically increase the cost of refinancing public debt and raise the federal budget’s sensitivity to market conditions. This does not create a short-term default risk, but it does contribute to a more fragile medium-term debt sustainability dynamic. Thus, even though the current zone (10-year near 5% and 30-year above 5%) represents a significant level of financial stress, the true systemic breaking point lies higher, around 6.5%–7%, where the cumulative effects on sovereign debt, private credit, and real estate could become simultaneously highly problematic. The table below describes US financial risk according to the level of the US 10-year Treasury yield. These values also apply to long-term US bond yields, particularly the 30-year rate. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions. This content is not intended to manipulate the market or encourage any specific financial behavior. Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results. Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content. The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services. Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA. Products and services of Swissquote are only intended for those permitted to receive them under local law. All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade. Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties. The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.