The yield on 30-year U.S. Treasury bonds continues its upward trajectory.
According to Bloomberg data, the 30-year U.S. Treasury yield has exceeded 5% on 27 trading days this year, accounting for 19% of total trading days. Notably, it has surpassed 5% for 12 consecutive trading days recently. This marks the longest period the 30-year Treasury yield has remained above 5% since the 2007 financial crisis.
In 2007, long-term interest rates also exceeded 5% for 50 consecutive trading days. However, since the benchmark interest rate is currently 1.5 percentage points lower than it was then, the rates felt by the market are much higher.
Analysts attribute these high long-term rates to the deterioration of government finances and the increased issuance of corporate bonds by private companies to build artificial intelligence (AI) infrastructure.
Tony Rodriguez, Head of Bond Strategy at Nuveen Asset Management, stated, “The biggest factors driving up long-term rates are massive national debt and fiscal deficits.”
Since 2007, the size of the U.S. Treasury bond market has surged from $4.5 trillion to $31 trillion.
During the same period, the ratio of public national debt to U.S. GDP also doubled, surpassing 100%. Annual interest costs alone exceed $1 trillion.
International credit rating agency Fitch recently warned that “the U.S. debt burden is significantly higher than that of other countries with the same AA rating.”
The massive issuance of corporate bonds by private companies to secure funds for AI infrastructure investment is also pushing up bond yields.
Alex Payne, Senior Portfolio Manager at Vanguard Capital Management, stated, “Pension funds and insurers, the primary buyers of 30-year bonds, now have a wider range of options than before,” but added that he could not be certain whether interest rates have reached their peak.
Rodriguez of Nuveen also remarked, “Governments, hyperscalers, and corporations are all competing to secure investors in the long-term bond market.”
Kevin Flanagan, Head of Investment Strategy at WisdomTree, pointed out, “Fiscal deficits, existing debt, and the potential for increased government bond issuance in the future are all factors to consider when evaluating long-term bond yields.”
Unlike the significant rise in long-term bond yields, yields on mid-to-mid-term bonds with maturities of 2 to 10 years remain at levels seen in early 2025.
This is because, despite the increased likelihood of a Federal Reserve interest rate hike, investors have flocked to short-term instruments, which they consider relatively safer.
Hank Smith, Chief Investment Strategy Officer at Haverford Trust, said that investors have been concerned about national debt for the past 20 years, adding, “Tax-exempt clients do not invest in long-term bonds with maturities of 10 years or more because the risk-reward ratio does not match.”