U.S. government borrowing costs have climbed to their highest levels in nearly two decades as investors grow increasingly concerned that inflation, public debt, and geopolitical uncertainty could keep pressure on financial markets.
The yield on the 30-year U.S. Treasury rose to 5.2 per cent, its highest level since 2007, after another wave of selling hit the bond market. The move comes as the war with Iran continues to disrupt global energy supplies, pushing oil and gas prices to four-year highs and raising fears that higher fuel costs will spread through the wider economy.
With the Strait of Hormuz still effectively closed, investors are watching for signs that rising energy prices will feed into food, transport, and airfares. That has strengthened concerns that inflation may prove harder to contain than many had expected.
“Bond markets are warning that inflation could prove much stickier than many investors anticipated,” Nigel Green, CEO at deVere Group, said in a note.
The pressure has also driven the 10-year Treasury yield to about 4.67 per cent, its highest level in more than a year. The benchmark is closely followed because it helps shape mortgage rates, business loans, car finance, and other forms of borrowing across the U.S. economy. Higher yields can also weigh on stock markets, as investors reassess the appeal of equities compared with safer government debt.
The sell-off has spread beyond the United States. Long-term government bonds in the UK and Japan have also come under pressure, reflecting broader concerns over inflation, rising defence costs, and persistent budget deficits. The UK’s 30-year gilt yield reached its highest level since 1998, while Japan’s 30-year bond yield climbed to a record high.
“The forces driving the sell-off – fiscal deterioration, defense spending, sticky inflation, central bank paralysis – are not resolving in the next week. They are getting worse,” Ajay Rajadhyaksha, global chairman of research at Barclays, said in a note.
The latest market moves suggest investors are increasingly doubtful that central banks will be able to cut interest rates soon. In the U.S., consumer prices in April rose at their fastest annual pace in three years, adding to expectations that the Federal Reserve may need to keep policy tight for longer.
Wall Street fell on Tuesday as rising yields unsettled investors. The Dow dropped 322 points, while the S&P 500 and Nasdaq also declined, extending their losing streaks to a third session.
The rise in yields also complicates the political backdrop for President Donald Trump, who has favoured lower interest rates. It comes as Kevin Warsh, his pick to lead the Federal Reserve, prepares to take charge of the central bank.