U.S. Treasury Sell-Off Unstoppable! 30-Year Yield Soars to 19-Year High

U.S. Treasuries are facing a fresh wave of selling, with the 30-year yield rising 3 basis points on Monday (17th) to 5.29%, the highest level since 2007 and nearing the 5.44% peak seen during the early stages of the global financial crisis.

The rise in long-term yields reflects investor concerns over the rapid expansion of U.S. national debt, a surge in long-term bond supply, and inflation running above the Federal Reserve’s (Fed) target for five consecutive years. Investors are demanding higher returns to compensate for increased government debt and sustained inflation risks, further pushing up the U.S. government’s borrowing costs.

This pressure is not unique to the U.S. Global bond markets are also grappling with rising government debt and the possibility of elevated short-term interest rates. The U.S. market is additionally affected by a surge in corporate bond issuance driven by the AI boom and weakening demand from traditional long-term bond buyers.

Anshul Pradhan, Head of U.S. Rates Strategy at Barclays, stated it is still premature to bet on the end of the long-term Treasury sell-off. A shift toward optimism may require an unexpected improvement in the fiscal deficit, a slowdown in AI-related bond issuance, a change in the Treasury’s issuance strategy, or persistently weak economic data.

Monday’s decline extended last week’s trend. The U.S. Treasury auctioned $25 billion in 30-year bonds last week, with a high yield of 5.216%, the highest for such an auction since 2001. The day before, the 10-year Treasury auction saw financing costs rise to their highest level since 2007.

Notably, recent economic data has cooled, reducing the urgency for the Fed to raise rates in the coming months. Last week’s core inflation came in below expectations, July employment unexpectedly declined, and retail sales posted their largest drop in over a year. However, the July Consumer Price Index (CPI) still rose 3.4% year-on-year, significantly above the Fed’s 2% target.

Economic weakness has led to diverging movements across Treasury maturities, further steepening the yield curve. Since the beginning of the month, the 30-year yield has risen over 13 basis points, while the 2-year yield has fallen by 12 basis points, highlighting market concerns over economic slowdown in the short term and fiscal, supply, and inflation risks in the long term.