Treasury Policy Credibility & Yield Curve Simulator

Fiscal Targets & Credibility

Deficit / GDP 6.2%

Market Credibility Discount 45 bps

Tariff Revenue Offset $120 B/yr

Real GDP Growth Target 2.4%

Debt Issuance & Fed Path

T-Bill Share of Issuance 24%

Expected Terminal Fed Funds 3.75%

Public Debt Outstanding $28.5 T

Model Calibration Notes

Yields are decomposed into Expected Policy Rate + Duration Term Premium + Fiscal Credibility Spread. Shifting issuance to short bills dampens long-term term premium at the expense of accelerated 24-month debt rollover vulnerability.

10-Year Treasury Yield 4.52% Fed: 3.75% | Prem: 0.77%

2s10s Yield Spread +62 bps Moderate Steepening

Annual Net Interest Expense $1,085.4 B 3.8% of GDP

Credibility Regime Fragile Market Equilibrium

US Sovereign Yield Curve & Term Structure Decomposition

Simulated Curve

Neutral Baseline

Fiscal Risk Wedge

Debt Portfolio Structure & Rollover Risk

Bills (<1Y)

24%

Notes (2-7Y)

52%

Bonds (10-30Y)

24%

High T-bill reliance reduces duration pressure today but exposes Treasury to sharp refinancing spikes if inflation rebounds.

Policy Credibility Assessment

Market pricing indicates modest skepticism regarding long-term deficit consolidation targets.

• Net Deficit Drag: $1.68T / yr (after $120B tariff offset)

• Bond Vigilante Resistance: Moderate

• Debt-to-GDP Trajectory: Expanding (+1.8%/yr)