LONDON/NEW YORK -- U.S. long-dated Treasury yields rose to their highest in more than 20 years on Thursday, extending a selloff that has accelerated of late on worries that high energy costs, resilient economic growth and increased government spending will keep inflation elevated.
Bond markets worldwide have been under pressure for months, sending yields to multi-decade highs as the Iran war raised energy prices and investors fret about government spending. Rising yields mean bond prices are falling.
Investors of late have grown more concerned as the selloff in the U.S., the world’s deepest and most influential government bond market, has picked up pace. The yield on 30-year Treasury bonds climbed to just over 5.46 per cent, the highest since 2004, while the benchmark U.S. 10-year yield hit 5.14 per cent, after touching a 19-year high.
So far, investors have absorbed the rise in yields given the resilience of underlying economic growth, booming corporate profits and the avalanche of spending, led by the AI boom. The tech-heavy Nasdaq closed at a record high on Tuesday.
But borrowing costs may be reaching a point at which global financial markets could start to hit turbulence and consumers feel the squeeze. U.S. 30-year mortgage rates are now a percentage point higher than before the war and, at seven per cent, around their highest in two years.
The selloff accelerated on Wednesday and Thursday after business activity data pointed to strong U.S. growth and rising inflation pressures, stoking U.S. Federal Reserve rate-hike bets.
While shorter-dated Treasury yields track expectations for interest rates, the 30-year yield reflects investors’ willingness to finance government borrowing in the years ahead.
“You’re seeing a repricing of several things -- U.S. economic growth has remained resilient, and that’s a more positive reason why you would find yourself in a higher risk-free rate environment,” said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte, North Carolina.
“With economic growth coinciding with such heavy deficits, not only in the U.S. but across developed markets, it seems to be causing a harder look at the fiscal picture. It’s something that we have been talking about a decade now, and it’s only gotten worse.”
The world’s biggest economies are grappling with higher interest payment as spending demands surge. Germany’s finance agency said on Thursday it expects federal borrowing to hit a record €525.5 billion (US$598 billion) in 2026 and to rise further next year, driven largely by rising refinancing needs and growing requirements for special funds.
The yield on Germany’s benchmark 10-year Bund briefly rose above 3.6 per cent this month, its highest level in 17 years.
Japan’s 10-year bond yield on Thursday hit its highest since 1996.
Investors still calm
With nominal U.S. growth running at around eight per cent in the second quarter and showing no signs of slowing materially, investors have remained sanguine.
U.S. Treasury Secretary Scott Bessent has taken extraordinary measures to try to contain rising borrowing costs, including intervening to buy the yen to avoid officials in Tokyo selling Treasuries to do so, or expanding buybacks of 20- and 30-year debt, but to little avail, as yields have continued to climb.
The U.S. already boasts some of the highest yields among the Group of Seven richest nations.
New York Federal Reserve President John Williams said on Thursday the U.S. economy was displaying “remarkable resilience.”
“Treasuries are competing with the rest of the market to be purchased and so you know, the question is, how much higher could it go?,” Hank Calenti, global markets strategist at SMBC EMEA, said.
By Amanda Cooper, Sophie Kiderlin and Gertrude Chavez-Dreyfuss
(Additional reporting by Harry Robertson; Editing by Dhara Ranasinghe and David Gaffen)
