The 30-year U.S. Treasury bond yield touched its highest level in more than twenty years on Thursday, before pulling back slightly during the morning session. The yield climbed to 5.45 percent in late morning trading, marking the sharpest intraday reading since 2004. That peak followed an earlier spike to 5.446 percent, after which the yield slipped by roughly two basis points.
The long-dated bond has been under pressure for weeks, with yields climbing steadily since the outbreak of the Iran conflict. Just before the U.S. and Israel launched military operations, the 30-year yield closed at 4.63 percent. It had already reached its highest point since 2007 last month, and Thursday's move pushed it to a fresh two-decade high.
The war has rattled global energy markets, particularly due to the Islamic Republic's restrictions on shipping through the Strait of Hormuz, a critical chokepoint for oil exports. West Texas Intermediate crude, the U.S. benchmark, was trading above $95 per barrel on Thursday, after briefly topping $100 again last week. Brent crude, the international standard, was above $107 per barrel. The Pentagon has spent an estimated $42 billion on the conflict as of last month, adding to fiscal pressures.
Investors are also fleeing the bond market as U.S. public debt balloons. The national debt now stands at roughly $40.1 trillion, having crossed the $40 trillion threshold in August. That mounting debt load is compounding concerns about the government's fiscal trajectory and fueling a sell-off in Treasuries.
The turmoil is not confined to the United States. Japan's 10-year government bond yield hit a three-decade high on Wednesday, reaching 3.08 percent. Meanwhile, the 10-year U.S. Treasury yield is hovering at a 19-year peak.
“Yesterday was a terrible day for global bond markets and today looks no better,” wrote Robin Brooks of the Brookings Institution on X on Thursday.
Adding to the pressure are expectations that the Federal Reserve will continue raising interest rates. Several central bank officials this week have signaled further tightening, following the Federal Open Market Committee's unanimous decision last week to hike rates by a quarter point. Fed governor Michael Barr, a member of the FOMC, said Wednesday at the central bank's Chicago branch: “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”
Traders are pricing in about a 70 percent chance of another rate increase at the FOMC's late October meeting, according to the CME FedWatch tool as of late Thursday morning. If the Fed does hike and manages to bring inflation closer to its 2 percent target, that could eventually temper the rise in long-term yields, noted Collin Martin of Charles Schwab. “Ironically, Fed rate hikes may prevent long-term yields from rising much further if they help keep inflation expectations in check,” Martin wrote in an analysis.
The bond market's moves are also rippling into the mortgage sector, with rates on home loans climbing to their highest levels in over a year. As Treasury yields surge, borrowing costs across the economy are likely to keep rising, adding to financial strain for households and businesses.
