Macroeconomic Policy & Sovereign Debt Research Lab Calibrated: US Fiscal Baseline & CBO 10-Yr Outlook

Treasury Yield & Sovereign Debt Dynamics Simulator

An interactive sovereign risk engine modeling the nexus of issuance maturity duration, structural deficits, Fed rate trajectories, and term premium feedback loops.

Policy Presets:
Simulated 10Y Yield
4.45%
+0.15% vs Baseline (4.30%)
Moderate
Effective Rollover WAM
6.2 yrs
Annual Refinance Burden: ~28%
Balanced
10-Yr Peak Net Interest
$1.94 T / yr
5.1% of Gross Domestic Product
Elevated
Interest / Revenue Peak
24.2%
Exceeds total Defense Spending by Yr 4
High Crowding-Out
1. Dynamic Treasury Yield Curve & Issuance Maturity Profile
Model Nelson-Siegel curve shift vs Baseline par yields as short-debt ratio and term premiums evolve
2Y/10Y Spread: +35 bps
Simulated Yield Curve
Baseline CBO Baseline Yield Curve
Current Maturity Issuance Weight
2. 10-Year Federal Budget Outlay & Interest Crowding-Out Projection
Net Interest Expense vs Discretionary & Mandatory Outlays as a % of Total Federal Revenue
Tipping Level: 20% Warning Zone
Net Interest Outlays
Defense & Non-Defense Discretionary
Mandatory Programs (Social Security, Medicare)
20% Revenue Sovereign Alert Line
3. 10-Year Sovereign Debt & Cash Flow Ledger
Year-by-year compounding math: Nominal GDP, Refinancing Tranches, Net Interest, and Debt/GDP Ratio
Fiscal Year Nominal GDP ($T) Total Debt ($T) Debt / GDP Rollover Vol ($T) Avg Effective Rate Net Interest ($B) Interest / Rev % Status

Macro-Fiscal Mechanics & Tipping Point Theory

Framework Foundations

The Domar Debt Sustainability Condition

The sovereign debt-to-GDP ratio trajectory is governed by the spread between the average nominal interest rate on public debt (r) and nominal GDP growth (g), plus the primary budget deficit (d).

Δ(Debt / GDP) = (r - g) × (Debt / GDP)t-1 + Primary Deficit %

When r > g, debt accumulates automatically via snowball compound interest, even with a balanced primary operating budget.

Weighted Average Maturity (WAM) Convexity

A shorter WAM (aggressive T-bill reliance) lowers immediate borrowing costs during an inverted or steep normal curve, but exposes the sovereign to severe refinancing shocks when existing tranches mature.

Annual Refinance Burden ≈ 1 / WAM + Primary Deficit

With a 3-year WAM, over 33% of the sovereign debt stock must be re-auctioned every 12 months at prevailing market yields.

The Discretionary Crowding-Out Threshold

Historical sovereign debt distress escalates when Net Interest absorbs more than 15% to 20% of federal revenues. Above 25%, interest expense eclipses total national defense, severely restricting fiscal flexibility.

Crowding Index = Net Interest Outlays / Total Federal Receipts

Crossing 30% traditionally triggers sovereign credit downgrades and elevated term premium feedback loops.

View Complete Model Equations, Calibration Data & CBO Baseline Assumptions

This simulator implements a dynamic multi-tranche sovereign debt model calibrated to contemporary US Treasury statistics and CBO 10-year budget baselines:

  • Debt Stock Distribution: Divided into 4 primary duration buckets: Short Bills (≤ 1Y), Short Notes (2Y–5Y), Long Notes (7Y–10Y), and Ultra-Bonds (20Y–30Y).
  • Yield Curve Parameterization: Yields for each tenor y(m) are calculated using Nelson-Siegel factor decomposition: level (neutral rate + term premium), slope (Fed policy stance), and curvature (issuance concentration supply elasticity).
  • Term Premium Feedback Loop: An endogenous term premium function adds +5 bps to 10Y/30Y tenors for every 10 percentage point increase in Debt-to-GDP above 100%, simulating investor risk compensation for auction indigestion.
  • Federal Receipts Baseline: Calibrated at 17.5% of nominal GDP based on historical 50-year averages.
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