30-Year Treasury Yield Touches a 19-Year High

The Treasury Department (Sipa USA)
By Yuval Rosenberg and Michael Rainey

Happy Tuesday! Voters are going to the polls today to decide primary contests in Alaska, Florida and Wyoming and a special election to serve out the remaining term of former California Rep. Eric Swalwell, who resigned after multiple allegations of sexual assault and misconduct. (Swalwell denied the allegations.)

Here's what we're watching while waiting for the ballots to be counted.

30-Year Treasury Yield Touches a 19-Year High as US Debt Approaches $40 Trillion

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.

Trump Wants Navy Carriers Redesigned to Look More Like World War II Era

President Trump doesn't like the way the U.S. Navy launches planes from its new Ford-class aircraft carriers or the way the carriers look, and so the Navy is eyeing major design changes that could cost billions of dollars and cause years of delays in the construction of new ships.

Trump has long complained about the launching system used on the USS Gerald R. Ford, the first in a new generation of aircraft carriers that are set to replace the 1960s-era Nimitz-class carriers that make up most of the current fleet. In the Ford class, the Electromagnetic Aircraft Launch System, known as EMALS, replaces the older, steam-driven catapults that were first deployed in the 1950s. The rollout of EMALS on the Ford was marred by numerous technical difficulties, and the system continues to face questions about its reliability, though it has now recorded more than 35,000 successful launches.

As the Ford was undergoing testing during his first term, Trump complained about all of the new technology on the ship and called for the Navy to go back "to goddamned steam," claiming that sailors have to be like Albert Einstein to operate the ship's "crazy electric catapult."

Demanding changes: Last week, Trump issued a presidential memorandum that orders the Pentagon to produce plans to replace EMALS on the USS Doris Miller, the fourth Ford-class carrier, which is currently under construction and scheduled to be delivered in 2034. If approved, the design could create a new subclass of carriers based on the Ford design but utilizing steam-powered catapults.

Trump also has complaints about the way the Ford-class carriers look. The Washington Post reported this past weekend that Trump doesn't like the location of the Ford's island, the tower that sits above the deck and holds various control rooms for the ship. Trump wants the new carriers to look more like older carriers, such as the Essex-class carriers built in the 1940s, that had islands closer to the middle of the ship on the starboard side, rather than toward the rear. In the Ford class, the island was moved back to improve safety, efficiency and launch rates, but the Navy is now looking into the feasibility of moving the island forward.

Major changes, major costs: Naval experts say that the changes being contemplated for the Ford-class carriers are significant and could result in scheduling delays and cost overruns stretching into the billions - a serious problem for a ship that has already experienced plenty of both issues.

Bryan Clark, director of the Center for Defense Concepts and Technology at the conservative-leaning Hudson Institute, said switching back to steam power would fundamentally change the Ford-class ships, which use electricity for many functions, including heating and water purification. "These functions all used steam in previous carrier classes," Clark told Breaking Defense. "Restoring steam lines to at least the catapults will require extensive redesign of the ship."

Clark added that the Navy hasn't built a steam catapult in more than two decades, raising the question of whether suppliers and subcontractors still exist.

Other experts have pointed out that bringing back steam would alter the crew requirement, with dozens of sailors needed to operate the elaborate system, and reduce the expected life of aircraft onboard, since steam-powered launches are more violent and add extra stress to the airframes being launched.

Speaking to the Post about moving the island, Clark said it would require "a major redesign" that would likely change the ship's weight and buoyancy. "You could change it," he said, "but it's very disruptive."

A former senior official told the Post that the Navy had looked into moving the island during Trump's first administration and determined that it could cost billions of dollars for a new design while delaying construction significantly. "It came back that the cost and time to do so would just be extraordinary," the official said.

What comes next: The Pentagon has a 60-day deadline to produce a new design using steam catapults, which means that Trump could order changes in the design of the fourth Ford-class carrier. Carrying out such an order, though, could take years, extending beyond the end of Trump's second term, raising the possibility that the changes remain on the drawing board for a few years while never making their way onto the sea.

Quote of the Day

"The question is simply who decides whether a ballroom can be built on federal property. Our constitutional system and federal law commits that choice to Congress. If Petitioners believe there is a pressing need for a ballroom, nothing prevents them from asking Congress for one-today, tomorrow, or any time in the future. But Petitioners' efforts to foil judicial review and arrogate Congress's exclusive powers should not be rewarded with a stay that allows Petitioners to complete a ballroom they lacked any authority to commence in the first place."

− A filing submitted to the Supreme Court on Tuesday by lawyers for the National Trust for Historic Preservation, which is seeking to have the court block construction of President Trump's White House ballroom.

The administration "cannot identify any statute granting them 'express authority' to destroy a third of the White House and replace it with a massive, privately funded ballroom, because none exists," the filing says. It asks the court to suspend work on the ballroom while the justices consider the legal challenge.

The filing comes after the Trump administration last week petitioned the Supreme Court to reverse lower court rulings and allow construction on the project to continue. The administration insists that the president has full authority to renovate the White House and that the project must be completed for national security reasons. The administration said in its petition that the project is about 65% complete.

An appeals court decision halting aboveground work on the project is set to take effect on Friday unless the Supreme Court intervenes.

Fiscal News Roundup

Views and Analysis