Global Bonds Under Pressure, US Yields Approach 2007 Levels
Yields on the longest-dated US government bonds have surged again, signaling renewed pressure in global debt markets as investors assess the risks of inflation and fiscal deficits becoming increasingly difficult to ignore. The 30-year Treasury yield rose 7 basis points to 5.19% on Tuesday (May 19), its highest level in nearly two decades, last seen in the lead-up to the 2007 global financial crisis.
The yield increase occurred amid a sell-off in bonds across the region. The surge in energy prices due to the Iran war heightened inflation concerns, leading markets to raise expectations that central banks—including the Federal Reserve—could be forced to maintain tighter policies for longer or even raise interest rates again. At the same time, the ballooning government deficit has led investors to demand greater compensation for holding long-term debt.
The impact has the potential to ripple through the real economy. Persistently high yields could raise borrowing costs for households and corporations in the US and depress economic activity if financing conditions tighten. This pressure has also fueled speculation about policy responses, including efforts to shift issuance to shorter tenors to reduce long-term interest burdens.
Market price swings are also testing long-held investor assumptions. The 5% level on the 30-year yield was previously seen as a “limit” that would induce buying, but recent movements challenge that view and signal that the US$31 trillion Treasury market could be entering a new phase, where higher duration risk premiums become the new normal.
Similar repricing is evident outside the US, with the yield on 30-year UK gilts approaching 6% and German long-term borrowing rates at their highest level since 2011. In the US, transmission to government funding costs is beginning to be seen: the 30-year Treasury auction in mid-May was the first since 2007 with a yield above 5%, while investor demand was considered unremarkable despite the already high yield.
The arrival of new Fed Chair Kevin Warsh has increased market focus on the next policy direction. Traders are now starting to anticipate that the Fed's next move could potentially be a rate hike, perhaps as early as the end of the year, a reversal from pre-war expectations that had pointed to several cuts in 2026. Meanwhile, US Treasury Secretary Scott Bessent has expressed a commitment to lowering borrowing costs, while the median estimate for the primary dealer deficit is US$1.95 trillion for the fiscal year ending in September and widening to US$2 trillion by 2027—factors that could continue to maintain pressure on long-term bonds and force investors to reassess their allocation from stocks to bonds as yields offer increasingly competitive returns. (arl)
Source: Newsmaker.id
