Milton Friedman, arguably the world's most famous laissez-faire economist, famously said there's nothing as permanent as a temporary government program.

Overreach, Friedman argued, was the driving force behind state power, and it needed to be tamed-in part-by free market capitalism.

Applying his adage to the bond market, however, might suggest nothing seems as permanent as a temporary rise in Treasury yields, and markets will need to accept this new reality heading into this year's final months and beyond.

"Higher rates are here to stay," said Jean Boivin, who heads the BlackRock Investment Institute. "Sticky inflation, heavy government borrowing, and growing private investment needs give little reason for pressure on yields to fade."

Summer's climb in bond yields, which move inversely to bond prices, has been startling-and worrying-because it comes during a time of stable, if high, inflation readings, and softening jobs and spending data.

The benchmark 10-year note has added some 40 basis points since the end of June, or around half of its march higher since the start of the Iran war on Feb. 28. It hit 4.79% early Tuesday, the highest since January 2025; analysts now expect 5%before the end of the year.

At the same time, the 30-year bond has traded north of 5% on more days this year than at any point since 2006, according to Bloomberg data, and was last changing hands at a 5.267%. That's just a tick or two from the 2007 peak of 5.29% it reached last month-a level that prompted Treasury Secretary Scott Bessent to intervene.

The global selloff-bonds issued by Japan, Germany, Britain, and France have been absolutely hammered-has taken collective government yields to the highest levels in almost 20 years, creating an effective reset from the long stretch of low yields that followed the financial crisis.

And this "new normal"-with higher yields, rising borrowing costs, and the sky-high federal debt-is here to stay.

U.S. debt topped the $40 trillion mark for the first time last month, and the deficit is expected to surpass $2 trillion when Washington's fiscal year ends on Sept. 30.

Servicing that debt is taking $1 trillion a year out of the Treasury, putting it third in line-item costs behind Social Security and Medicare-and just ahead of national defense

Meanwhile, the stock market's biggest sector, technology, is borrowing cash at a record pace to fund artificial intelligence.

AI-related borrowing is on track to top a half-trillion dollars this year, according to Morgan Stanley, with more on the way. The data center buildout shows little signs of slowing.

"Aggregate capital expenditures by the hyperscalers are projected to approach $800 billion this year and exceed $1 trillion annually from 2027 through 2030," said Lucas Baynes, a senior investment strategist at Vanguard.

"If these forecasts prove broadly correct, the recent surge in bond issuance may be less a one-off financing event and more the beginning of a multiyear shift in corporate bond supply," Baynes added.

The rush to fund those projects might say something about the expectations for Treasury yields, which form the cost basis for huge borrowers such as Amazon, Alphabet, Meta Platforms, and Microsoft.

Either way, the new drive for highly rated corporate debt, which sits at the epicenter of the stock market's principal bull market driver, is to generate massive competition for capital just as the government looks to sell more bonds-and borrow more money over the near term.

The Congressional Budget Office sees federal debt rising to $50 trillion by the end of the decade and the deficit reaching $3 trillion around the same time. The CBO also estimates spending will surpass government revenue by $11 trillion over the next decade.

So, with rising Treasury yields, more government borrowing, corporate and government borrowers fighting for the same slice of the fixed-income pie, and inflation making it all more expensive, here is the knotty question: Are we sleepwalking into a debt crisis?

Not really, according to Ed Yardeni, the man who coined the phrase "bond vigilantes" in the early 1980s to describe investors who punish governments for their fiscal largess with higher borrowing costs.

For one, he sees a 10-year yield well below the rate of nominal GDP (growth unadjusted for inflation), a favorable spread that should keep the bond vigilantes at bay in the near term.

And he federal debt includes about $7.7 trillion of borrowing within the government that never touches the Treasury market, while household and business debt relative to GDP "remains well below its pre-Global Financial crisis peak."

"We'll worry about the deficit and rising debt when the Bond Vigilantes start worrying about them," Yardeni said. "For now, we don't think we are there yet. Treasury yields remain in a range broadly consistent with a healthy economy, and we expect the 10-year yield to remain between 4% and 5%."

Still, that 5% threshold isn't far away, and at this selloff pace, it could be tested in early October, just as the stock market pops the Champagne cork for its four-year bull market anniversary.

Whether it triggers the bond vigilantes is another knotty question.

But what it certainly suggests is a new normal for interest-rate markets, held down for more than a decade by government and central-bank action that lasted a lot longer than it needed.

"The bond market may be telling policymakers that investors are losing confidence in painless solutions," said Mark Malek, CIO at Siebert Financial. "A 10-year yield pushing higher while Fed expectations turn more hawkish isn't exactly a vote of confidence in the soft-landing narrative."