US 30-Year Bond Yield Reaches 2007 High Amid Worsening Market Selloff

Yield on US Treasury's Longest-Dated Bond Reaches 20-Year High

The yield on the US Treasury's 30-year bond rose to 5.20% on Tuesday, its highest level in nearly two decades. This increase is a result of investor concerns that accelerating inflation will force central bankers to raise interest rates. The 30-year yield rose as much as seven basis points on Tuesday, a level last seen on the eve of the 2007 global financial crisis.

The selloff in bond markets has spilled over into US equity markets, with yields on government bonds surging globally in recent weeks. A jump in energy prices caused by the Iran war has added to inflation fears, prompting traders to bet the Federal Reserve will hike rates as soon as this year. Mounting deficits are also prompting investors to demand greater compensation to own longer-maturity debt.

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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. This reflects ongoing uncertainty around Fed policy, energy-driven cost pressures, and heavier Treasury issuance. Persistently higher yields threaten to slow the US economy, which has so far proved resilient, and lift borrowing costs for US home buyers and corporations.

The prospect of higher borrowing costs is fueling speculation about a policy response by US officials, who have shifted debt issuance toward shorter-dated maturities. Worryingly for bondholders, Tuesday's selloff was not driven by a surge in oil prices or any individual catalyst. That speaks to a broader nervousness in the market as investors reappraise the clearing price for debt.

US 10-year Treasury yields rose as much as 10 basis points to 4.69%, the highest since early 2025, before the move pared to around 4.66%. Heavy trading in Treasury futures helped drive the move, particularly in contracts tied to five- and 10-year notes. Investors placed several sizable block trades as yields kept rising, and trading volume in the 10-year futures contract during the morning session in New York was nearly twice the recent average.

The shift in market sentiment will soon confront incoming Federal Reserve Chair Kevin Warsh. Traders anticipate the Fed's next move will be a rate increase, potentially as soon as the end of this year. When the Iran war began in late February, they anticipated as many as three Fed cuts in 2026.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

The 5% level for 30-year US yields has been considered a "line in the sand" that would spark dip-buying by some investors. The recent moves are challenging that assumption, potentially signaling a new era for the $31 trillion Treasury market, widely considered the premier safe asset and a barometer for borrowing costs around the world.

Strategists at Barclays Plc and Citigroup Inc. have warned clients that yields may breach 5.5%, levels last seen in 2004. The head of BlackRock's research unit is recommending investors reduce their exposure to developed-market government bonds — including Treasuries — in favor of equities.

A similar dynamic is playing out globally, with yields on 30-year UK gilts approaching 6% and Germany's long-term borrowing rate trading at a 2011 high. In the US, it's already feeding through to government financing costs. A mid-May auction of 30-year Treasuries was the first since 2007 to result in an interest rate of at least 5%. Investor demand was unremarkable, even at that level.

US Treasury Secretary Scott Bessent has committed to bringing down borrowing costs at a time when investor concerns over the debt level persist. The median budget deficit estimate of primary dealers of US Treasury securities released earlier this month showed a $1.95 trillion gap for the year ending in September and further widening to $2 trillion in 2027.

The ability of US equities to withstand the current bearish move in Treasuries is the true litmus test of the bond selloff. The S&P 500 stock index has soared over 7% this year, weathering the selloff in most bond markets. However, the Russell 2000 Index, comprised of smaller companies that typically carry higher debt loads and are less profitable than their larger counterparts, was down about 1% by the end of the trading session, widening its three-day decline to 4%.