Key facts
- U.S. 30-year Treasury yields reached their highest level since 2004 on Thursday.
- The increase in yields is attributed to strong U.S. economic growth and high energy prices.
- Investors are increasing bets on further Federal Reserve rate hikes.
- Global bond markets have been under pressure due to the Iran war, resilient growth, and high government debt.
- U.S. 30-year mortgage rates are now around 7%, their highest in two years.
- Germany expects federal borrowing to hit a record €525.5 billion in 2026.
U.S. 30-year Treasury yields climbed to just over 5.44% on Thursday, marking their highest level in over two decades and the highest since 2004. This surge reflects increased investor demand for higher compensation to hold U.S. government debt, driven by robust economic growth, elevated energy prices, and growing expectations of further Federal Reserve interest rate hikes.
Global bond markets have experienced sustained pressure in recent months, influenced by the Iran war's impact on energy prices, resilient economic performance, and concerns over substantial government debt levels. Despite the rise in yields to multi-decade highs, investors have largely absorbed these increases, supported by strong corporate profits and significant spending, particularly related to the AI boom.
Chris Scicluna, Daiwa Capital's head of economic research, noted that while rising yields can make mortgages more expensive and increase the government's debt interest burden, the situation is not overly dramatic as long as it remains orderly. While shorter-dated Treasury yields are closely tied to interest rate expectations, the 30-year yield reflects investors' long-term financing appetite for government borrowing.
Germany's finance agency anticipates federal borrowing to reach a record €525.5 billion ($598 billion) in 2026, with further increases expected the following year, largely due to refinancing needs and special fund requirements. In Japan, the 10-year bond yield reached its highest point since 1996 on Thursday.
The immediate impact on households is evident, with U.S. 30-year mortgage rates now approximately one percentage point higher than before the recent conflict and standing at around 7%, their highest in two years. However, with nominal growth around 8% in the second quarter and showing no signs of significant slowdown, investors have remained relatively calm. New York Federal Reserve President John Williams described the U.S. economy as displaying "remarkable resilience."
Hank Calenti, global markets strategist at SMBC EMEA, pointed to strong PMI data indicating capacity constraints, rising backlogs, and rapid employment growth as factors putting upward pressure on prices and demonstrating economic expansion. U.S. Treasury Secretary Scott Bessent has implemented measures to manage rising borrowing costs, including interventions to prevent Japanese officials from selling Treasuries and expanding buybacks of longer-dated debt, though these efforts have had limited success. The U.S. currently offers some of the highest yields among Group of Seven nations.