US long-dated Treasury yields rose to their highest in more than 20 years on September 24, extending the phenomenon of global selloff that has accelerated over the worries of high energy costs, resilient economic growth, and increased government spending keeping inflation elevated.
Bond markets worldwide have been pressured for months, sending yields to multi-decade highs as the Iran war raised energy prices and as investors fret about government spending. To complicate things further, central banks are raising their interest rates as well.
High yields mean bond prices are falling.
The United States, known for possessing the world’s deepest and most influential government bond market, is witnessing a massive selloff. The yield on 30-year Treasury bonds climbed to 5.48%, highest since 2004, on Thursday, while the benchmark US 10-year yield reached 5.20%.
To date, investors have absorbed the rise in yields given the resilience of underlying economic growth, booming corporate profits, and increasing spending, led by the AI boom.
The 10-year Treasury yield breached the 5% mark in September. Investors are now preparing themselves to see the ratio crossing the 6% milestone, which could increase the pain further for the global financial markets and corporate America.
Breaching the 6% milestone will only result in elevated borrowing costs squeezing consumers ahead of the midterm elections.
In the world’s largest economy, 30-year mortgage rates are now a percentage point higher than before the Iran war and, at 7%, are around their highest in two years.
The 10-year yield has risen 0.70 percentage points since the Federal Reserve policy meeting in June and 1.25 percentage points since early March.
“The vast majority of the move higher in yields since March has been driven by rising Fed expectations, with the remainder driven by a combination of rising growth expectations and higher oil prices,” said Gennadiy Goldberg, head of US rates strategy at TD Securities, in a research note.
Recent business activity data indicating strong US growth and rising inflation pressures has raised the chances of the Kevin Warsh-led Federal Reserve possibly hiking rates further.
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.
Along with the United States, the major global economies are grappling with higher interest payments as well, with spending and lending demands surging steadily at the government, business, and household levels.
Germany’s finance agency now expects federal borrowing to hit a record 525.5 billion euro (USD 598 billion) in 2026 and to rise further in 2027, 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% in September, its highest level in 17 years.
Japan’s 10-year bond yield on Thursday hit its highest since 1996.
US Treasury Secretary Scott Bessent has remained proactive in containing rising borrowing costs.
Not only did he intervene to buy the yen to avoid officials in Tokyo selling US Treasury bonds, the Donald Trump administration official also expanded buybacks of 20- and 30-year debt.
However, these measures have proven mostly ineffective, as yields have continued to climb.