The Trump administration is explaining the surge in long-term borrowing costs as evidence of a stronger economy, even as some leading investors see a warning about America's fiscal trajectory.

Why it matters: If Trump economic officials are right, higher yields might reflect an economy strong enough to make its enormous debt burden more manageable.

• But worried investors see stubborn inflation that could keep rates higher for longer and a bond market forcing Washington to reckon with its debt sooner than expected.

The intrigue: Whatever is driving the move, the fallout is the same: higher borrowing costs for consumers, businesses and governments.

• That cuts against the administration's promise to bring borrowing costs down, a key piece of its affordability agenda.

Between the lines: We told you yesterday that Treasury Secretary Scott Bessent called the run-up in yields a "growth story" on the sidelines of the G20 meeting of finance ministers and central bankers in Asheville.

• The 10-year Treasury yield was at 4.8% this morning, the highest level in two years.
• The 30-year yield topped 5.3%, erasing the drop that followed Bessent's bond market intervention announcement last month and hovering near its highest levels since 2007.

What they're saying: Bessent's argument is that stronger growth prospects — rather than higher inflation expectations as a result of, say, the renewed attacks between Iran and the U.S. — were fueling the rise in yields.

• "Right now we have what Alan Greenspan would have called a 'conundrum.' ... We have large borrowings by AI institutions," Bessent told reporters last night at a press conference.
• Bessent said private-sector executives at the G20 — including the Deere and Eli Lilly CEOs — described how their companies were already using AI to raise productivity.
• AI-related capital expenditures "will turn into productivity and that will be extremely disinflationary," Bessent told reporters. "I would guess that in the next six months, we will start seeing the benefits of that."
• He also said during the press conference that "interest rates will come down when we get on the other side of this," referring to the Iran war.

Zoom in: David Zervos, chief market strategist at Jefferies, dismissed fiscal worries as the main driver of higher yields, pointing instead to fierce competition for capital.

• The economy looks like the "opposite of secular stagnation ... with a lot of competing sources for capital investment right now," he said.
• "There's just lots of other cool things to buy than an Italian government bond, or a U.S. government bond, or a Japanese government bond."

The other side: The bond sell-off is global, with borrowing costs surging around much of the globe as governments contend with heavy debt loads and rising interest costs.

• The sell-off was on the minds of policymakers gathered in Asheville, with international finance officials saying it was a sign that markets are questioning governments' fiscal credibility.
• "Whatever issues they have been debating about at the G20 for years, like deficits — the market is staring them in the face and saying, 'We're not convinced you have the right plan here,'" Atlantic Council's Josh Lipsky, who's also a G20 veteran, told Axios.

The bottom line: The bond market has become an important scorecard for the Trump administration, which has pointed to falling yields as validation of its policies.

• Now, higher yields make it harder to deliver on President Trump's promise to bring down borrowing costs and ease the affordability squeeze.
• Asked about that tension, Bessent pointed to rising real wages and said officials were working to reduce costs.

Private employers added jobs at a tepid rate last month, ADP said, as economists await Friday's release of the official government employment data for August.

Why it matters: The ADP data adds to the evidence that a surge in the job market this spring gave way to more moderate expansion over the summer.

Driving the news: The payroll processing company reported that 38,000 jobs were added in August, the lowest since January and below forecasters' expectations. It was also lower than the revised 44,000 added in July.

• The strongest gains, as has often been the case in recent years, were in education and health services (45,000 jobs added) and leisure and hospitality (up 16,000).
• Laggard sectors included manufacturing (down 17,000 jobs) and professional and business services (down 16,000).

What they're saying: "If you want to look for places of disappointment, [manufacturing] is the one I would point to," ADP chief economist Nela Richardson said in a call with reporters.

• "It's kind of retreated back to its long-term job loss instead of job creation," she said. "So we're going to be watching that sector to see if this is the reversion back to a declining trend after a few months of at least a little bit of positivity."

What's next: The Labor Department's August employment situation report, due out at 8:30am ET Friday, is expected to show 53,000 jobs added, reversing a July payroll slump.

• Forecasters expect the unemployment rate to be unchanged at 4.1%.

Between the lines: Federal Reserve officials have described the labor market in recent months as broadly healthy, and instead focused on inflation data as they weigh whether to raise interest rates.

• Still, if payroll and unemployment numbers come in weak, it would give some officials pause about a new effort to tighten policy. Conversely, a more robust August reading would solidify the case for higher rates at the Federal Open Market Committee's policy meeting concluding Sept. 16.