Indicators · Public finances and policy

Government borrowing costs in a US downturn

Close to triggering: borrowing costs rising Direct evidence

The extra return investors demand to hold ten-year US government bonds was up 36 basis points over three months (63 trading days) to 2 Oct 2026; the median ten-year yield of six large markets was up 71 basis points over the three months to 8 Oct 2026. The rise in the median ten-year yield of six markets is past its threshold, but no US recession signal is on (neither US unemployment nor new jobless claims has reached its threshold), so neither rule can trigger now. If a US recession signal came on while it lasted, the rule for a rise would trigger.

The change in this extra return over three months is higher than 93% of the readings since 1990.

US recessions Periods when this signal was on

Applied to past data, the rule for a rise triggered in recessions and in the recoveries after them.

What it measures

The change over three months (63 trading days) in the extra return investors demand to hold ten-year US government bonds (the premium), and in the median ten-year government bond yield of six large markets.

Why it matters

If investors grow more doubtful about public finances as jobs are lost, the extra return they demand on government debt would rise in a downturn. In most downturns it falls, as investors buy government bonds for safety.

When it triggers

While a US recession signal is on, one rule triggers when the premium rises 0.39 percentage points or more in three months (63 trading days) or the median yield rises 0.61 percentage points or more; that would count as evidence for the third point of our view. The other triggers when the premium falls 0.38 percentage points or more, or the median yield falls 0.69 percentage points or more; that would count against that point. Each threshold is a change larger than 95% of those from 1990 to 2019 (for falls, among the 5% smallest).

Where it fits

Public finances and government borrowing costs. The argument predicts: Receipts from taxes on wages fall first; then the extra return investors demand to hold government debt rises in countries whose budgets rely on taxes on wages, while growth slows. At the pace measured so far this is years away.

Other possible causes. For taxes on wages, changes in tax law; for borrowing costs, budget politics in one country, or a worldwide rise in bond yields while employment is stable.

A trigger counts only if, during the period it measures, the prices US businesses charge were not rising faster than in 95% of quarters from 1990 to 2019.

When the rule was set

Its two rules were set on 8 Oct 2026. That day, one was close to triggering. When the rules were set, the rise in the median ten-year yield of the six markets was already past its threshold, and no US recession signal was on. A trigger can count as evidence only if, on data dated after the rule was set, the signal first reads normal, neither triggered nor close to triggering, and then triggers, and if the change it measures began after that date.

How often it has been on

Applied to past data at the end of each month from Jan 1990, using only what had been published by then, it was on in 6% of months to 2019 and 1% since 2020. More than six months from any US recession as dated by the National Bureau of Economic Research, one of its rules triggered in Jul 1992, Aug 2003, Jun 2010 and Mar 2021. The rules were set with these years in view, so these figures cannot show how well they predict.

Past triggers

On the data published at the time, the rule for a rise while a US recession signal is on (evidence for our view) triggered in May 2001, Aug 2003, Jun 2008 and Mar 2021. The rule for a fall while a US recession signal is on (evidence against our view) triggered in Jan 1991, Jul 1992, Jul 2002, Nov 2008 and Jun 2010.

Source: Federal Reserve Board via FRED; Sveriges Riksbank; US Treasury via FRED.