The US is borrowing too much money, and that's what's driving rates higher, former Dallas Fed President says

• The US is borrowing too much money and that's what is keeping rates up, the ex-Dallas Fed Chair says.
• The US is borrowing this quarter will amount $8.66 billion dollars a day.

The higher for longer outlook for interest rates sparked a historic crash in Treasury bonds this month, but there's another factor that's set to keep yields higher going forward, and that's US fiscal policy.

According to former Dallas Federal Reserve President Richard Fisher, massive government borrowing needed to fund massive spending will be a culprit of higher bond yields.

"I believe what's driving rates higher and what will keep them higher for longer is our fiscal policy," Fisher told CNBC on Tuesday. "The daily borrowing for the next 90 days as we go into the last quarter of the US government is $8.66 billion a day. A day. These numbers have gotten horrendously large."

"There's just no way you can clear this market that is so heavily dependent on more issuance, more issuance, more issuance," he added.

The mounting pile of US debt is an increasingly worrying factor for investors who are afraid of what the soaring deficit means for the long term stability of the US economy.

Compounding the issue of soaring debt is rising interest rates, as borrowing costs rocket higher amid the Federal Reserve's fight against inflation. On top of that, the Treasury is issuing more bonds at a time when the field of potential buyers is potentially smaller, another factor that could weigh on prices and keep yields up.

"I think the Fed's in good shape here, it is not the Fed that is the problem," Fisher said. "It's the fiscal authorities that are out of control. And as long as that's the case, we're going to live in a 5% world."

Supply is not often a major concern for Treasurys, which represent the world's biggest and most liquid securities market. However, T. Rowe Price's chief Europe economist said recently the market is entering a new world where supply is indeed a concern. That's because the biggest buyers of the bonds—central banks—are pulling back.

As Fisher said, if the US keeps borrowing more money, a glut of supply in the bond market will eventually weigh prices down, pushing yields up.

That would create a difficult feedback loop of rising debt and rising interest payments, meaning the government has to spend more to service its debt.

Already, the US is on track to hit a record high debt-to-GDP ratio of 107% by 2029. Some have warned recently, too, that a dearth of buyers could lead to failed auctions of US Treasurys, which would lead the Fed to step in as a buyer, possibly fanning inflation.