Traders work on the floor of the New York Stock Exchange. New York Stock ExchangeThe yield on the 30-year US Treasury bond has risen to its highest level in nearly two decades, and some strategists see room for the sell-off in long-term government bonds to go further. The 30-year Treasury yield, which is typically sensitive to geopolitical developments, advanced more than 4 basis points to 5.311% on Monday, hitting its highest level since June 2007. Foreign holdings of Treasury bonds fell in June, the Treasury Department reported on Monday, with major holders in the United Kingdom, China and Japan reducing their holdings. “Long-term yields are likely to rise to 5.60%-5.70% and will likely advance at a faster pace than normal given the recent resolution of this three-year triangle pattern,” said Fundstrat technical strategist Mark Newton. July retail sales were the weakest since May 2025, while recent labor market data also points to cooling conditions. So what could drive yields even higher?1. Global ParticipationThe latest jump in Treasury yields did not originate entirely in the US. Fundstrat’s Newton pointed to Japan, where weaker-than-expected economic growth was accompanied by a hotter GDP deflator. “Ten- and twenty-year JGB yields rose and spilled directly into US markets, pushing the long bond to new multi-year highs,” Newton said. If yields in other major developed markets continue to rise, investors could demand higher yields to also hold U.S. government debt, industry veterans said. BMO strategists also pointed to fiscal concerns in the US, Japan, the UK and Europe as a possible factor behind the recent weakness in long-term bonds. Even if U.S. economic data softens, a global review of long-term borrowing costs could keep upward pressure on Treasury yields, they said.2. More price increases from the Federal Reserve Another risk is that the U.S. economy simply remains too strong for interest rates to fall much. Markets are currently pricing in an unusually benign combination: resilient growth and record stocks, Deutsche Bank said in a note late Monday, limited only by further central bank tightening and contained commodity supply shocks. The bank argued that the combination may prove difficult to sustain. “By definition, strong growth and buoyant risk assets mean that financial conditions will remain accommodative, lifting demand and pushing central banks to raise rates more quickly,” Deutsche Bank macro strategist Henry Allen wrote. If growth remains strong and financial conditions remain flexible, demand could remain strong enough to keep inflation elevated and force the Federal Reserve to raise 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 rate increases. Their analysis suggests that a CPI rate above 3% has historically corresponded to more than 100 basis points of adjustment during the first year of Fed rate hike cycles. There is precedent for a strong bond market revaluation even without a recession. In early 2024, stronger growth and inflation caused the 10-year Treasury yield to rise from 3.88% in late 2023 to a high of 4.70% in late April, as expectations of rapid Federal Reserve cuts dissipated.3. Supply, Inflation, and the Term Premium The third risk is specific to longer-term bonds: Investors may demand greater compensation to lend to the U.S. government for decades. Heavy Treasury bond issuance is a pressure point. BMO noted that the latest 30-year auction had its highest yield since 2001, while five of the previous seven 20-year auctions had failed, suggesting demand for long-duration debt has not been as strong. Inflation could add another layer of pressure. BMO said energy remains a potential bearish trigger for Treasuries, particularly as yields have shown little willingness to fall despite weaker economic data. A new raw materials shock would further complicate the picture. Deutsche Bank warned that “the combination of a negative hit to both growth and inflation could hit stocks and bonds simultaneously.” For now, that leaves long-term Treasuries vulnerable from several directions at once: rising global yields, an economy that could prove stronger than expected, and lingering concerns about inflation and debt supply. As Deutsche Bank put it, “current market prices leave almost no room for error.” Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.
