The yield on benchmark 30-year Treasury bonds briefly hit a fresh 19-year high on Tuesday before pulling back slightly. The recent surge that lifted the 30-year Treasury yield above 5.3%, the highest since 2007, comes amid a global bond selloff and worries about stalled talks to end the war with Iran, fears of persistent inflation, questions about monetary policy under new Federal Reserve Chair Kevin Warsh and concern about U.S. borrowing that has the national debt poised to hit $40 trillion.
Investors are factoring in a longer-term closure of the Strait of Hormuz and higher oil prices — but are also demanding higher yields as the U.S. government looks to borrow more.
“Rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears,” Dan Coatsworth, head of markets at AJ Bell, wrote in a Tuesday note to clients, per CNBC. “They can also reflect concerns around high levels of government borrowing and investors demanding greater compensation for the risks of holding long-dated government bonds.”
After the U.S. deficit for July surged to $432 billion, a pair of Treasury auctions over the past week have drawn notice for yields that reached long-term highs, as a sale of $42 billion in 10-year notes cleared at a high yield of 4.68%, the highest in 19 years, while the most recent 30-year bond auction drew a yield of roughly 5.22%, the highest since 2021.
“When it comes to longer-dated Treasury issuance, investors are increasingly focused and concerned about the growing amount of U.S. debt and America’s lack of fiscal discipline,” Anthony Saglimbene, chief market strategist at Ameriprise Financial, wrote in a piece published Monday. “And frequent, large-scale treasury auctions are a chance for the bond market to push back against the government's eroding fiscal trajectory, as they demand higher yields for the auctions to clear.”
Competition from companies issuing new debt to finance the AI investment boom is likely also a factor, many analysts say. “Hyperscaler borrowing to fund AI infrastructure is competing for the same pool of buyers at the same moment governments need those buyers most,” Nigel Green, CEO at deVere Group, said in a note cited by CNN. “Crowd two urgent borrowers into one market and the price of patience goes up for everybody.”
Global jitters: The worries about inflation and the fiscal outlook aren’t only affecting the United States, and longer-dated bonds have hit multi-year highs across several countries, including Japan, Germany and France.
“We’ve often said that we will worry about the US government debt problem when the Bond Vigilantes worry about it,” Ed Yardeni of Yardeni Research wrote in a note to clients Tuesday morning. “In recent months, they seem to be stirring around the world, suggesting that they are worrying about the government debt problem not only in the US. They’ve been especially active in the United Kingdom and Japan, where government deficits and debt are even higher than in the US relative to their nominal GDPs.”
The bottom line: Investor appetite for U.S. debt hasn’t gone away, but the higher yields on Treasury bonds are increasing the cost of financing large annual U.S. budget deficits and a national debt that is expected to hit $40 trillion any day now.