The market for U.S. Treasuries has shown troubling signs lately, and rising yields are a clue that conditions are more dire than they appear, according to Robin Brooks, a senior fellow at the Brookings Institution.

In a Substack post on Tuesday, he said U.S. policy is now focused on preventing long-term borrowing costs from shooting higher and pointed to Treasury Secretary Scott Bessent’s efforts to double debt buybacks as well as Fed Chair Kevin Warsh’s Jackson Hole speech that reassured markets on his inflation-fighting credibility.

Brooks added that economic data releases that indicate weaker activity have failed to bring down long-term yields, unlike the historical pattern, revealing how much upward pressure is coming from the market.

“As far as I can tell, it’s an all-hands-on-deck situation where long-term yields are concerned,” he wrote.

Although Friday’s jobs report surprised to the upside, other economic data over the past month have consistently fallen short of expectations, according to Brooks. Rather markets sending yields lower to account for a slower economy and cooler inflation, yields have marched higher.

To be sure, the U.S. war on Iran has also heated up in recent weeks. With fighting intensifying and no sign of diplomatic progress, oil prices have headed back up, worsening the inflation outlook.

But Brooks argued the anomalous behavior of the 10-year yield is actually as sign that “demand for Treasury debt is weaker than first meets the eye.”

With U.S. debt now at $40 trillion, it’s starting to overshadow the AI boom as the center of attention on Wall Street. Debt worries aren’t limited to the U.S. either, with yields in other top economies like the U.K., France, Germany, and Japan also surging.

That’s as governments since the COVID pandemic have continued spending as if borrowing costs were still at crisis-era lows and letting deficits worsen as if their economies were still in desperate need of emergency stimulus.

But the economic landscape is totally different now. Interest rates have surged in recent years to combat high inflation, and the AI boom is pouring hundreds of billions of dollars a year into an economy that increasingly immune to higher rates.

“When does debt become unsustainable? When the global financial markets say it is,” RSM Chief Economist Joseph Brusuelas said in a note last month. “That appears to be happening.”

At the same time, buyers of U.S. debt have changed. Foreign central banks and other institutions looking for a safe place to park their capital have diminished roles in the Treasury market and have increasingly turned to alternative havens like gold.

Norges Bank Investment Management, the world’s biggest sovereign wealth fund with $2.3 trillion in assets, has proposed reshuffling its debt holdings away from Treasuries.

As traditional U.S. debt buyers pull back, hedge funds have emerged as major players—and they are more price sensitive, stoking volatility in the debt market.

That means the Treasury Department must offer attractive yields to keep bond investors coming back. And as the budget deficit heads toward $2 trillion a year with no sign of lawmakers trying to rein it in, the market is getting skittish about continuing to lend to the federal government at such levels.

For Brooks, the decoupling of yields from economic data leads to an “obvious explanation,” namely that markets are more focused on the deficit outlook and are pushing up longer-term rates.

“The underlying dynamic in the Treasury market is more worrying than you think,” he added.

But others interpret rising yields as a sign of a strong economy. Wall Street veteran Ed Yardeni has dismissed warnings of an imminent debt crisis and instead thinks yields are just going back to normal, before the Great Financial Crisis and the COVID-19 pandemic ushered in a era of ultra-low rates.

Of course, the current trajectory of U.S. debt is still unsustainable, he added in a recent note, but the so-called bond vigilantes don’t seem to be worried about it, at least not yet.

“Treasury yields remain in a range broadly consistent with a healthy economy, and we expect the 10-year yield to remain between 4.00% and 5.00%,” Yardeni predicted.