LONDON/NEW YORK, Sept 24 (Reuters) – US long-dated Treasury yields rose to their highest in more than 20 years on Thursday, extending a global selloff that has accelerated 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 as investors fret about government spending. Rising yields mean bond prices are falling.
Investor concern has risen of late as the selloff in the US, the world’s deepest and most influential government bond market, has picked up pace. 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%.
So far, investors have absorbed the rise in yields given the resilience of underlying economic growth, booming corporate profits and an avalanche of spending, led by the AI boom. The tech-heavy Nasdaq closed at a record high on Tuesday.
But this month’s breach of 5% on the 10-year Treasury yield, a level reached only fleetingly in recent decades, has investors eyeing 6% as the next potential pain threshold, which could rattle financial markets and Corporate America.
At these levels, borrowing costs may start to squeeze consumers. US 30-year mortgage rates are now a percentage point higher than before the war and, at 7%, around their highest in two years.
The 10-year yield has risen 0.70 percentage point 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 pointing to strong US growth and rising inflation pressures has raised the chances the Federal Reserve will hike 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.
“You’re seeing a repricing of several things — US 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.
