Bond rout pushes 30-year Treasury yield to 5.27% as deficits bite

The global bond rout deepened Tuesday, driving the 30-year Treasury yield to 5.27% and UK 30-year gilts to their highest since 1998, as investors demanded more compensation for fiscal deficits and inflation risk across developed markets.

"If inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates," Fed Governor Michael Barr said in prepared remarks, the latest official to flag tighter policy as markets lifted the odds of a September hike to nearly 70 percent.

The 10-year Treasury yield rose 2 basis points to 4.78%, its highest since January 2025, while the 30-year added 2 basis points to 5.27%. UK 10-year gilts climbed 5 basis points to 5.21% and 30-year gilts jumped 7 basis points to 5.86%, the highest since 1998. German 10-year bunds rose 1 basis point to 3.33%, and Japan's 10-year yield added 4 basis points to 2.99%, the highest since 1996, with the 30-year at 4.19%.

The repricing is squeezing households and governments alike. The average 30-year mortgage rate jumped more than 11 basis points since last Thursday to 6.77%, while higher yields raise the cost of servicing a federal debt load that keeps growing — a feedback loop that can push long-term rates higher still as investors demand more compensation to hold the paper.

Deficits and inflation feed the selloff

The move is broadly tied to fears of higher global inflation and a worsening fiscal picture. In Japan, Prime Minister Sanae Takaichi's plans for greater fiscal stimulus have fueled investor concern, while in Europe heavy borrowing and rising deficits are under scrutiny after years of geopolitical crises drove spending higher. Renewed strikes between the US and Iran over the weekend sent oil prices higher, reviving the specter of sticky inflation.

Corporate borrowing is adding to the pressure. US investment-grade issuance reached $1.68 trillion year to date through July, up 27 percent from a year earlier, according to SIFMA, as companies fund AI projects. Bank of America predicts $190 billion of investment-grade bonds this month, up from $164 billion in August, crowding out Treasuries and competing for investor capital. Some foreign holders are also diversifying away from US debt.

Bessent brushes off the rout

Treasury Secretary Scott Bessent has expressed no concern over the selloff, a stance that looks increasingly exposed as yields climb. His comments that Japan could do more to boost its currency added to volatility in Tokyo, where investors now weigh the risk of a Bank of Japan rate hike. Bessent's announcement last month that the Treasury would step up bond buying to quell yields at the long end rattled investors already nervous about the government's ability to rein in borrowing.

The 30-year yield is at its highest in nearly two decades, a level last seen before the global financial crisis rewired rate expectations. Equities have so far absorbed the move: the S&P 500 fell 0.71 percent to 7,631.47, the Dow Jones Industrial Average dropped 0.79 percent to 52,766.88, and the Nasdaq 100 lost 1.29 percent to 29,077.22.

"We do not expect the rise in bond yields to derail what we continue to view as a constructive backdrop for equities," Brock Weimer, an analyst at Edward Jones, said.

The test comes at the Federal Reserve's Sept. 15-16 meeting, where markets now price nearly 70 percent odds of a 25-basis-point increase. If inflation fails to moderate, Barr's warning suggests officials will act — a move that would push borrowing costs higher still and test whether Bessent's dismissive stance can hold.

This article is for informational purposes only and does not constitute investment advice.