The CFR has a paper out called "How Dangerous is US Government Debt?", looking at the possibilities of a spike in interest rates in the future. They noted that there were many domestic factors that pointed to such possibility, and potential volatility with regards to foreign inflows.

On the domestic front, they talked about the deterioration of short-term/medium-term fiscal outlook. In particular, they brought up an analysis by Thomas Laubach that linked each percentage point increase in the projected deficit-to-GDP ratio to a 0.25 percent increase in "longer-term" interest rates. If you combine that correlation with the current deficit projections, CFR claimed that the fiscal situation would lead to a one percentage point increase in long term rates.

Otherwise, they noted that the Federal Reserve has been purchasing long-term Treasury securities since March 2009, a move that has helped ease the enormous strain that the current huge deficits have had on the Treasury markets. Although these purchases appear to have no sign of slowing down soon, when the Fed does pull out, it will put extra pressure on the bond markets. Another factor that could put upward pressure on long term interest rates is inflation expectations, which were on a "post-crisis upward march" and which they expected to accelerate once the recovery got a stronger hold.

In terms of foreign inflows, obviously the US is very much dependent on them to finance its public sector debt. Currently, foreigners own about half of all Treasuries, so a move away from bonds could mean significant increases in interest rates. The CFR said that the US got a bit of good luck with the timing of the European financial turmoil, since foreign inflows were headed clearly in the direction of the eurozone and away from the US before then. According to CFR, the eurozone crisis, and the flight-to-quality that followed, might just be masking an underlying lack of confidence in US debt like the one we saw in early 2009.

Finally, they warned that this "respite" might be an excuse to run up the debt even further. That obviously should not be the case. Regardless of where the market is this moment, we should develop a plan to deal with our debt in the medium-term. And no, this is not saying we should cut back now while the economy is weak, just because bad things might happen if we don't. We're saying the US should try to minimize the chance that interest rates could jump in the future by cutting back when the economy has recovered. Low interest rates are no excuse not to act.