US Long Bond Yield Hits Highest Since 2023 on Inflation Concern

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US Long Bond Yield Hits Highest Since 2023 on Inflation Concern.

treasuries & bonds :: 19hrs ago :: source - bloomberg

By Greg Ritchie and Matthew Burgess

(Bloomberg) -- Treasuries sold off on Monday, pushing the yield on 30-year notes to the highest in almost three years as investor concern over accelerating inflation fueled a selloff in global debt.

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The 30-year yield increased as much as four basis points to 5.16% as oil prices extended their gains after US President Donald Trump renewed pressure on Tehran to end the Iran war. That’s the highest level since October 2023.

Yields on 10-year securities and two-year notes touched 4.63% and 4.10%, respectively, levels last reached in February 2025. Japan’s 30-year yield surged to the highest since the debt’s debut in 1999, while bonds in Australia and New Zealand also fell.

Bond traders have often touted a 5% handle on 30-year Treasuries as a “line in the sand” that attracts dip buyers. The current spike higher in long-term borrowing costs threatens to upend that view and usher in a new era of higher yields in the $31 trillion Treasuries market, which is a major driver of debt costs globally.

There is “no anchor above 5%,” said Guneet Dhingra, head of US rates strategy at BNP Paribas, who is recommending clients target a 5.25% to 5.5% trading range in the 30-year note. “Holders of long-end Treasuries are increasingly more price-sensitive than before.”

The concern is that a surge in energy prices emanating from the closure of the Straight of Hormuz will force central banks — including the Federal Reserve — to keep interest rates elevated. Add in worries over US deficits and signs that the economy remains resilient, and the upshot is that investors are seeking greater compensation to own longer-dated Treasuries.

Ed Yardeni, president and chief investment strategist at Yardeni Research said the Fed needs to drop its easing bias at its June meeting. Failure to do so will cause traders to see the central bank as behind the inflation curve and demand a higher inflation risk premium, according to a note. He coined the term “bond vigilantes” to describe investors who sell bonds in protest against policies they deem inflationary.

What Bloomberg Strategists Say:

“Global bonds are set to decline further as burgeoning inflation concerns hit hard for both ends of the curve. Higher oil prices cement the case for a hawkish turn from global central banks, which will drive up short-end yields. Meanwhile, increased issuance and rising inflation expectations will intensify investor demand to be compensated for duration risks” — Garfield Reynolds, Markets Live Asia Team Leader

Ever since the US and Israel’s attacks on Iran in late February, the bond-market’s narrative has been flipped on its head. Whereas traders were betting on two quarter-point cuts this year before the war, interest-rate swaps now point to a hike in March 2027 as a virtual certainty to combat inflation pressures.

The increase in energy prices is filtering through to everything from the cost of gasoline for tractors to harvest crops to packaging plastic bottles for soda. Coming at a time when major economies are showing signs of resilience, the worry among traders is that central banks may be forced to raise interest rates to rein in inflation.

This backdrop may exert further pressure on Treasuries, which have registered a loss of almost 1% this year. In late February, US government bonds were up almost 2% for the year, according to a Bloomberg gauge.

“The US is still running a high-pressure economy with elevated growth and inflation risks to the upside, which is not priced in markets,” said Kellie Wood, head of fixed income at Schroders’ Australian unit. Wood’s fund is short US Treasuries with their modeling suggesting that 10-year yields could be trading near the 4.75% to 5% range, she said.

The selloff is already feeding through to government financing costs. A mid-May auction of 30-year Treasuries was the first since 2007 to get a interest rate above 5%. Investor demand was unremarkable, even at that level.

Should the selloff persist, higher yields will send US mortgage and corporate lending rates higher, threatening to slow down the world’s largest economy. The situation is sparking speculation of a policy response from officials, who have already been pivoting borrowing toward shorter tenors.

While the US is far from alone — 30-year UK yields are approaching 6%, Germany’s long-term borrowing rate traded at the highest since 2011 on Friday and Australia’s long-end yield is at a record high — Treasuries are the world’s premier safe asset, with gyrations in yields causing global ripples.

“Between the war and still-firm economic activity across the globe, overheating risks are featuring more heavily across the G-10,” said Eugene Leow, a senior rates strategist at DBS Bank in Singapore. “The current situation feels more like a rolling repricing across the developed-markets space, each one taking turns to adjust to a higher rate regime.”

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