30-year Treasury yield tops 5.3% as global bond rout deepens

A global bond selloff has pushed the 30-year US Treasury yield above 5.3% for the first time since 2007, and Wall Street sees no end in sight.

A global bond selloff has driven the 30-year US Treasury yield above 5.3% for the first time since 2007, lifting borrowing costs across the developed world as investors weigh inflation, budget deficits and a new Federal Reserve chairman.

"Basically, this is a normalization," said Robert Tipp, chief investment strategist and head of global bonds at PGIM Credit.

The 10-year Treasury yield, the benchmark for mortgages and corporate debt, traded near 4.7%, while Japanese 30-year yields topped 4% for the first time in their 27-year history and UK gilts reached their highest since 1998. Brent crude rose above $91 a barrel as the US-Israel conflict with Iran stoked inflation concerns.

The climb raises the federal government's interest bill, which the Congressional Budget Office projects will consume 3.3% of gross domestic product this year and 4.6% by 2036, up from a half-century average of 2.1%. Nearly one in five dollars of federal revenue now goes to interest payments.

Investors blame the rout on a mix of forces that show little sign of easing: the Iran conflict and surging oil prices, a wave of tech-company debt funding artificial-intelligence infrastructure, and a lack of clarity from Fed Chairman Kevin Warsh, whose refusal to provide forward guidance has left markets guessing on the path of rates. The 30-year yield traded around 4.7% in February before the war with Iran, then climbed steadily through the summer.

"The worsening situation in the Middle East is likely a factor in intensifying concerns over inflation and concerns over the US fiscal position," said Derek Halpenny, head of research for global markets at MUFG. "There remains zero appetite in the US for addressing the US fiscal position and that is increasingly weighing on the long end of the curve."

Deficits Meet a $40 Trillion Debt Load

Publicly held US debt now stands at about 100% of GDP, near records set after World War II, and the national debt is approaching $40 trillion. That load makes the country unusually sensitive to rate moves: a 0.1 percentage-point rise in all rates above CBO forecasts would add $379 billion in net interest expenses, the agency estimates. The CBO's earlier forecast assumed a 10-year yield of 4.1%, well below its current level.

"The issue is not so much the rising interest rates," said Michael Strain, director of economic policy studies at the American Enterprise Institute. "The issue is the deficit. If we can only be concerned about one thing, that one thing should be the 10-year deficit outlook."

Treasury Secretary Scott Bessent has tried to curb the rise, most recently intervening in currency markets to support the Japanese yen — a move that could reduce pressure on Japan's government to sell US Treasurys to buy its own currency. The continued climb has exposed the limits of those maneuvers. The Treasury sold $25 billion of 30-year bonds last week at a yield of 5.22%, the highest auction rate since 2001.

"The fact that action by the Treasury Secretary up to this point has maybe not been as effective as he might have liked is another reason to think that this move higher could be sustained," said Zach Griffiths, head of investment-grade and macro strategy at CreditSights.

Stocks Feel the Squeeze

So far the selloff has been confined to bonds, with stocks near record highs and corporate earnings still strong. But higher yields are starting to bite. The Nasdaq Composite slid 1.3% and the S&P 500 fell 0.7% on Tuesday, while the PHLX Semiconductor Index posted its largest drop since July 1, down about 19% from its June 22 closing high.

"Markets have been able to overlook the increase in yields so far because we've had this earnings boom," said Keith Lerner, chief investment officer at Truist Advisory Services. "But I think as we move past the earnings season, there'll be more focus on yields."

Higher yields also carry political weight. Treasurys help set 30-year mortgage rates, and President Donald Trump, elected in part on affordability concerns, has repeatedly promised to lower them. With midterm elections approaching and polls showing voter dissatisfaction with the economy, a sustained rise in borrowing costs could test that pledge. If the 10-year yield holds near 4.7%, the government will factor higher borrowing costs into future forecasts, compounding the fiscal strain.

This article is for informational purposes only and does not constitute investment advice.