The Convenience Yield Is Gone. The Bill Is Coming.
For decades, U.S. Treasury securities commanded a pricing premium that economists call the convenience yield — the extra return investors were willing to forgo in exchange for holding the world’s most liquid, safest, most universally accepted collateral. That premium is eroding. The GAO’s March 2026 federal debt management report (GAO-26-107529) treats this as a structural shift, not a market fluctuation, and the data support that reading.
The convenience yield is not directly observable. It is inferred from comparisons between Treasury yields and yields on instruments with similar risk and duration profiles. The GAO uses the spread between 10-year Treasury note yields and 10-year Secured Overnight Financing Rate (SOFR) swap contracts — derivatives that share key features with Treasuries and carry negligible default risk. When investors accept a lower yield on Treasuries than on comparable SOFR contracts, the difference represents the premium they pay for the particular attributes of government paper: liquidity, depth, safety.
In recent years, that spread has inverted. Investors are demanding higher yields on 10-year Treasuries than on comparable SOFR contracts — meaning the convenience premium has not merely declined, it has turned negative for longer maturities. The GAO documents the spread widening from roughly negative 20 basis points (-0.2 percentage points) in January 2022 to approximately negative 50 basis points (-0.5 percentage points) by September 2025. Investors required an extra half-percentage-point of return just to hold Treasuries over a comparable alternative.
This finding is reinforced by a June 2025 NBER working paper by economists from academia and the Federal Reserve, which found that the convenience yield has declined as the supply of Treasury securities has grown since 2008. The research found that the convenience yield on 7- to 20-year securities has turned negative multiple times since 2014. A small positive convenience yield persists only for the 2- and 3-year segment — investors are still willing to pay something for short-duration safety, but the premium evaporates as maturities extend.
Why this matters for borrowing costs
The convenience yield was a subsidy. When investors accepted lower rates on Treasuries than the pure economics of duration and default risk would imply, the U.S. government borrowed more cheaply than it otherwise would have. As that subsidy contracts or reverses, the equilibrium interest rate on government paper rises, even holding everything else constant.
This effect compounds in a high-debt environment. The mechanism is straightforward: more supply of Treasuries reduces their relative scarcity premium, which reduces or eliminates the convenience yield, which raises the clearing yield at auction, which increases interest costs, which increases the deficit, which increases supply. The GAO does not label this a doom loop, but the structural logic is present in its analysis.
The shift from price-insensitive buyers — foreign official investors, pension funds with regulatory holding requirements — toward price-sensitive investment funds reinforces the same dynamic. The marginal buyer of U.S. government debt is increasingly someone calculating relative value, not someone holding Treasuries because the dollar’s reserve status demands it.
The era of near-free U.S. sovereign borrowing was not permanent. The price of that era’s end is now compounding in the federal budget, every quarter.