The UK’s largest investment manager has warned of a potentially “catastrophic” rise in US Treasury yields in the wake of the “extremely irresponsible” fiscal policy being adopted by Washington.

Barack Obama and congressional Republicans last week agreed a fresh economic stimulus package, involving the extension of Bush-era tax cuts and unemployment benefits, a payroll tax holiday and tax breaks for investment that, if passed, are forecast to maintain the bloated federal deficit at 9-10 per cent of gross domestic product.

The package, significantly larger than expected, fuelled a surge in 10-year Treasury yields to 3.28 per cent on Friday, from 2.51 per cent at the start of week, with most commentators attributing the jump to expectations of faster economic growth in the US in 2011 thanks to the stimulus.

However, Legal & General Investment Management, which manages £342bn ($541bn) of assets, warned the jump in bond yields could be the start of a bear market in US debt.