Traders work on the floor of the New York Stock Exchange.
new york stock exchange
The yield on the 30-year U.S. Treasury has risen to its highest level in nearly 20 years, and some strategists believe there is more room for long-term Treasuries to fall.
The yield on the 30-year Treasury note, which is typically sensitive to geopolitical events, rose more than 4 basis points to 5.311% on Monday, its highest level since June 2007. Foreign government bond holdings fell in June, with top holders Britain, China and Japan all reducing their holdings, the Treasury reported on Monday.
“Long-term yields are likely to rise to 5.60-5.70%, and likely faster than normal given the recent break from the three-year triangle pattern,” said Mark Newton, technical strategist at Fundstrat.
This comes despite recent U.S. economic data that would normally lead to lower yields. Retail sales in July were at their lowest level since May 2025, while recent labor market data also points to cooling conditions.
So what could drive yields even higher?
1. Global participation
The recent spike in government bond yields is not entirely attributable to the US
Fundstrat’s Newton pointed to Japan, whose GDP deflator is rising due to weaker-than-expected economic growth.
“Yields on 10-year and 20-year Treasuries rose, and that spilled over into the U.S. market, pushing long-term Treasuries to multi-year highs,” Newton said.
If yields in other major developed markets continue to rise, investors may seek higher returns from holding U.S. Treasuries as well, industry veterans said.
BMO strategists also noted that fiscal concerns in the U.S., Japan, the U.K. and Europe could be a factor in the recent decline in long-term bonds. Even if U.S. economic data softens, the global repricing of long-term borrowing costs could continue to put upward pressure on U.S. bond yields, they said.
2. Additional Fed interest rate hikes
Another risk is that the U.S. economy remains too strong for interest rates to fall significantly.
Deutsche Bank said in a note late Monday that markets are currently pricing in an unusually favorable combination of resilient growth and record-high stock prices, limited only by further central bank tightening, with commodity supply shocks contained. The bank argued that this integration could be difficult to maintain.
“By definition, strong growth and active risk assets mean financial conditions remain accommodative, boosting demand and encouraging central banks to raise rates more quickly,” said Henry Allen, macro strategist at Deutsche Bank.
If growth remains strong and financial conditions remain easy, demand could remain strong enough to keep inflation rising and force the Federal Reserve to raise interest rates more than investors currently expect.
Deutsche Bank noted that inflation remains above target and that current inflation levels have historically been associated with multiple interest rate hikes. That analysis suggests that a CPI rate above 3% has historically corresponded to more than 100 basis points of tightening in the first year of the Fed’s rate hike cycle.
There is precedent for bond market prices to soar even in the absence of a recession. In early 2024, accelerating growth and inflation pushed the 10-year Treasury yield from 3.88% at the end of 2023 to a high of 4.70% by late April, as expectations for rapid Fed rate cuts were rolled back.
3. Supply, inflation, and term premiums
The third risk is unique to long-term bonds. Investors could demand greater compensation for lending to the U.S. government for decades.
The issuance of large amounts of government bonds is one pressure point. BMO noted that while the most recent 30-year bond auction sold at the highest yield since 2001, five of the past seven 20-year bond auctions have been tailgated, suggesting demand for longer-term bonds is not as strong.
Inflation could add further pressure. BMO said energy remains a potential bearish factor for U.S. Treasuries, especially as yields show little appetite to fall despite weak economic data.
A new commodity shock would make things even more difficult. “Equities and bonds could be hit at the same time if both growth and inflation are adversely affected,” Deutsche Bank warned.
For now, long-term government bonds remain vulnerable from a number of simultaneous factors: rising global yields, stronger-than-expected economic growth, and persistent concerns about inflation and bond supply.
As Deutsche Bank says, “Current market prices have little margin for error.”
