The 30-year yield touched 5.2% Tuesday as energy-driven price pressures and mounting deficits sent investors fleeing long-dated U.S. government debt
Al Drago/Bloomberg via Getty Images
Inflation fears linked to the war with Iran sent investors fleeing long-dated government debt Tuesday, pushing the 30-year U.S. Treasury yield as high as 5.2% — a threshold not crossed since 2007. The 10-year yield climbed to 4.69%, its highest point since early 2025, before pulling back to around 4.66%.
The selloff had been building for weeks. Oil and gas prices have surged to their highest point in four years as the conflict continues to disrupt shipping through the Strait of Hormuz, and those energy costs have rippled outward into consumer goods ranging from groceries to airline tickets. U.S. consumer prices rose 3.8% in the 12 months through April, the fastest annual pace since May 2023, while wholesale inflation hit a 6% annual rate in April, its steepest gain since late 2022.
Liz Templeton, a senior product manager at Morningstar, said the long end of the yield curve is bearing the brunt of the repricing. "The bond market is pricing in a higher-for-longer rate policy, most visible in the long end of the curve where duration sensitivity is the greatest," she told Bloomberg, pointing to "ongoing uncertainty around Fed policy, energy-driven cost pressures, and heavier Treasury issuance" as the key forces at work.
What made Tuesday's moves particularly striking, according to Bloomberg, was the absence of any obvious trigger — crude prices actually drifted down — suggesting investors are engaged in a more fundamental reassessment of what they need to be paid to hold U.S. government debt.
Before fighting broke out with Iran in late February, market participants had penciled in up to three Fed rate reductions this year; the same traders are now wagering that the central bank's next move could be a hike rather than a cut. The shift will confront incoming Fed Chair Kevin Warsh as he takes the helm at the central bank. According to CNBC, a Bank of America $BAC poll of global fund managers released Tuesday showed nearly two-thirds of respondents — 62% — believe the 30-year yield is headed to 6%, which would represent the highest level since the late 1990s.
Sovereign debt markets elsewhere were similarly strained, with U.K. 30-year gilt yields climbing to territory last seen in 1998 and Japan's equivalent maturity touching an all-time high.
With the selloff now weeks in the making, the knock-on effects on what Americans and businesses pay to borrow have become increasingly difficult to ignore. For the first time in nearly two decades, a 30-year Treasury auction conducted in mid-May cleared at a yield above 5%. Despite Treasury Secretary Scott Bessent's stated goal of reducing borrowing costs, a survey of primary dealers projects the federal deficit will reach $1.95 trillion when the current fiscal year closes in September, with the gap expected to swell past $2 trillion by 2027.
Rising yields also weighed on stocks Tuesday. Equities extended their recent slide, with the Dow shedding 322 points, the S&P 500 dropping 0.67% to 7,353.61, and the Nasdaq $NDAQ giving back 0.84% — each index notching a third straight day of losses.
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