US bond sell-off drives 30-year yields to near-two decade high

[LONDON] The yield on 30-year US Treasuries hit the highest in almost two decades, reflecting investor angst over surging government spending, a flood of long-dated bond sales and inflation that has been stuck over the US Federal Reserve’s target for the past five years. 

The interest rate on the so-called long bond rose nearly six basis points to 5.31 per cent on Monday (Aug 17), surpassing a high from last month to reach the loftiest since 2007.

The move was echoed in the Canadian bond market, where the yield on 30-year securities rose to the highest since 2010, as well as in Europe, where German rates were at 2011 levels. 

The rise in the US, which is driving up the federal government’s borrowing costs, is part of a broader global shift as investors demand more compensation to protect against the risk of persistently high inflation that is likely to keep short-term interest rates elevated. 

The movement is also being fuelled by a ramp-up of corporate borrowing to fund the artificial intelligence investment boom and waning demand from traditional buyers of long-dated bonds, just as the federal government’s nearly US$2 trillion annual deficits keep pushing up the national debt. 

“We have been arguing against fading the long end sell-off, and we continue to do so,” said Anshul Pradhan, head of US rates strategy at Barclays.

“A constructive view would require some combination of a downside fiscal surprise, slower AI-related issuance, a shift in Treasury’s issuance strategy, and a sustained run of soft activity data.”

The trading Monday extends the sell-off from last week, which forced the US Treasury to sell US$25 billion of new 30-year bonds at a yield of 5.216 per cent – the highest level for such an auction since 2001.

A day earlier, the Treasury Department’s 10-year auction drew the highest financing cost since 2007. That yield edged up 3 basis points to about 4.72 per cent on Monday. 

SEE ALSO

US retail sales unexpectedly fall in July

Financial planners urge investors to consider other options as T-bills yields lose steam

Bond traders see inflation fight continuing as they take Fed chair Warsh at his word

Nohshad Shah, Citadel Securities’ head of EMEA fixed income sales, said long-term bond yields also reflect the Fed’s reluctance to tighten monetary policy despite the prolonged period of above-target inflation. 

The move is likely vexing to Trump administration officials, who early in 2025 said the president’s fiscal policies would pull down long-term interest rates by taming government spending and inflation.

Instead, Treasury rates have marched higher in 2026, rippling through to the cost of mortgages and other loans, as the US war on Iran hits the economy with an oil-price shock and the government continued to spend far more than it brings in. 

The rise in yields comes even after recent economic data appeared to take some of the pressure off Fed officials to raise short-term interest rates in coming months.

A gauge of underlying inflation released last week showed it was more subdued, the latest employment report revealed that US employers unexpectedly cut jobs in July, and US retail sales fell by the most in more than a year. 

Still, inflation remains well above the Fed’s 2 per cent annual target, with the consumer price index in July rising 3.4 per cent from a year earlier.

The July reading of the price index for personal consumption expenditures, the Fed’s stated inflation metric, will be released on Aug 26.

That softening of US economic data has fuelled a divergence between different maturities of Treasuries, steepening the yield curve. The gap between 2- and 30-year yields has risen to 113 basis points, the most since April. BLOOMBERG