The US Treasury market is under its most intense pressure in nearly two decades. The 30-year yield has remained above 5% for longer than any period since 2007, Brent crude surged 7% in a single day to break through the $100 mark, and renewed inflation expectations have pushed the probability of a rate hike to 36%. Mortgage rates have climbed to 6.58%, and the three major US stock indices suffered significant losses. Under the triple threat of fiscal deficits, a surge in AI-related bond supply, and retreating foreign buyers, JPMorgan CEO Jamie Dimon has warned that "bond vigilantes" are poised to make a comeback.
The US Treasury market is facing its most severe stress test in nearly two decades. Compounded by escalating tensions in the Middle East, oil prices breaking through the $100 mark, and revived inflation expectations, yields across the board have climbed to multi-year highs. The 30-year Treasury yield, in particular, has set a record for the longest sustained period at elevated levels since 2007, causing a sharp shift in market bets on the Federal Reserve's policy path.
On Thursday, the 10-year US Treasury yield rose 4 basis points to 4.71%, reaching its highest level since January 2025. The 30-year yield climbed to 5.19%, and its duration above 5% has now exceeded any period since 2007. Simultaneously, Brent crude futures surged 7% in a single day, breaking through $100 per barrel, with the market focused on the escalation of the Middle East conflict and reports of an attack on an oil tanker near the Saudi coast.
The rise in yields has quickly transmitted to real-world US borrowing costs. As the key benchmark for mortgages and corporate loans, the 10-year yield's ascent has pushed the average rate for a 30-year fixed mortgage in the US to 6.58% this week, its highest in nearly a year. US stocks also came under pressure, with the Dow Jones Industrial Average falling nearly 1% on Thursday, the S&P 500 dropping 1.2%, and the Nasdaq Composite declining by 2.15%.
Goldman Sachs' trading desk had previously identified the 10-year yield at 4.7%, WTI crude at $90, the VIX at 20, and the S&P 500's 50-day moving average as key psychological thresholds. The 10-year yield has now touched 4.7%. Charlie McElligott, an analyst at Nomura, believes the rate market is pre-emptively trading on other investors' policy expectations and is expressing discontent that a "hawkish hold" is insufficient.
The 30-year yield stands firm above 5%, marking its longest streak since 2007
The core of the current volatility in the Treasury market is the increased stickiness of long-end yields above the 5% level.
According to Dow Jones Market Data, the 30-year Treasury yield had been above 5% for 11 consecutive trading days through Tuesday, extending the streak on Wednesday to a new record not seen since 2007. On Thursday, the 30-year yield continued its ascent to 5.19%.
This level itself is not an automatic red line that triggers a market crisis. Market participants generally believe that 5% is more of a psychological round number that attracts attention, rather than a level that would force the US to halt its open market funding. Bond prices and yields move inversely. The persistent rise in yields means investors are demanding higher returns to compensate for risks such as inflation eroding returns, expanding fiscal financing needs, and increased supply of long-term bonds.
Dustin Reid, Chief Fixed Income Strategist at Mackenzie Investments, pointed out that for long-duration bonds, "the biggest enemy" is inflation. "If inflation is going to stay high for a long time, investors need to be compensated accordingly."
Notably, unlike in 2023 or earlier this year, the 30-year yield has struggled to quickly retreat once it hit the 5% mark. Alexander Payne, head of mortgage, agency debt, and volatility business at Vanguard, stated that there is no single "trigger" for this sell-off, but there is also no sign of rapid "buying the dip." He believes that given the massive US fiscal deficit and the historic spending expectations for AI infrastructure, "there will be plenty of opportunities to buy long-duration debt at higher yields."
Oil price shock reignites inflation expectations, rate hike bets intensify sharply
Brent crude breaking $100 per barrel is the direct catalyst for the current bond market turmoil.
The US-Iran conflict, which erupted in late February, has kept energy markets under pressure. Oil prices had retreated in June following a US-Iran ceasefire agreement, and inflation data had also cooled, but the fragile peace in the Middle East quickly unraveled. Brent crude has rebounded significantly from its lows. Hamad Hussain, climate and commodities economist at Capital Economics, stated, "Unless there are clear signs of de-escalation in conflicts across the region, the upside risk for oil prices remains significant."
Before the oil price spike, institutions like Goldman Sachs and UBS expected the Fed to keep rates unchanged this year. However, the market is now repricing for a more hawkish policy path. According to CME FedWatch data, the probability of traders betting on a rate hike at the Fed's next policy meeting has risen to 36%. Polymarket data shows that market bets on a rate hike occurring in 2026 have surged to 71%.
Charlie McElligott, a Nomura equity derivatives analyst, warned in a report on Thursday that the interest rate market is essentially trying to "anticipate the anticipators" and may be in the midst of a "small market tantrum," indicating that "a hawkish hold is no longer enough." He further noted that the oil shock implies higher interest rate volatility, which will force central banks to reprice their hawkish stance, ultimately triggering a broad tightening of cross-asset volatility.
Goldman Sachs' trading desk advised the market to watch several key psychological thresholds: the S&P 500's 50-day moving average (7,462 points), the 10-year yield at 4.7% (last touched in January 2025), WTI crude at $90, and the VIX volatility index at 20. McElligott also warned that the VIX's seasonal pattern is about to "take off" in August, a period typically characterized by low liquidity and low risk tolerance.
Fiscal financing and AI bond supply add pressure to long-end bonds
Oil is not the sole reason for rising Treasury yields. Fiscal deficits, the supply-demand dynamics of Treasuries, and increased long-term corporate bond issuance are all altering the supply-demand balance for long-end bonds.
The deteriorating US fiscal situation adds another layer of concern for the bond market. Defense Secretary Pete Hegseth testified before Congress on Tuesday that the US-Iran war has cost $37.5 billion so far, and the Trump administration is requesting an additional $67 billion in supplemental funding to support the escalating conflict. Meanwhile, the national debt has reached $39.6 trillion, nearly five times the $8.35 trillion figure in 2007, and the debt-to-GDP ratio surpassed 100% this spring.
At the same time, participation from foreign buyers in the US Treasury market has declined compared to past decades. Brij Khurana, a fixed-income portfolio manager at Wellington Management, pointed out that the presence of foreign buyers in the US Treasury market has been steadily weakening for decades, even as US debt approaches $40 trillion and issuance needs continue to rise. He believes a "relay" from foreign buyers to domestic holders is needed, but domestic investors "may only be willing to step in when the stock market falls."
The bond market also faces structural supply pressure from the corporate side. According to MarketWatch, citing BondCliQ data, the combined outstanding face value of bonds from six major tech giants—Microsoft, Amazon, Alphabet (Google), Nvidia, Meta, and Oracle—is approaching $500 billion in 2026. The AI capital expenditure arms race is providing bond investors with a massive alternative to 30-year Treasuries, further diverting demand away from US government debt.
Additionally, the bond market's trajectory is being influenced by market speculation regarding the policy direction of new Fed Chair Kevin Warsh. Warsh has pledged to drive central bank reform and establish a special task force to review communication mechanisms, the inflation framework, and balance sheet policies. Tom Tzitzouris, head of fixed-income research at Baird Strategas, commented, "The biggest driver right now is probably the Warsh story and how he will perform his duties as Fed Chair."
Rising rates begin to test equity valuations and housing finance
The rise in Treasury yields is now spreading from the bond market to US equities and the housing market.
In recent weeks, the stock market had reacted relatively moderately to rising oil prices. Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, believes the stock market could remain resilient with the 10-year yield around 4.65% and oil at $87, partly because short-term realized volatility remained low and corporate earnings expectations continued to be revised upward.
However, with oil surging to $100 and the 10-year yield breaking above 4.7%, this balance is beginning to falter. Higher yields increase corporate borrowing costs and compress the valuation space for high-priced assets. The weakness in tech stocks on Thursday, which accelerated the decline in the Nasdaq Composite, shows the market's increasing sensitivity to rising interest rates and capital expenditure.
The housing market is also facing a direct impact. The average rate on a 30-year fixed mortgage in the US has risen to 6.58%, near its one-year high. Higher mortgage rates typically dampen refinancing activity and increase the monthly payment burden for homebuyers.
Mackenzie Investments' Reid warned that if the 30-year yield hits 5.25%, the Treasury Department will begin to feel uneasy. "They don't want long-end yields to spike out of control because that would definitely pose a risk to the stock market and valuations." JPMorgan CEO Jamie Dimon also recently stated publicly that he would not buy long-term US Treasury bonds at current prices and warned that the deficit issue "will become a problem," at which point "bond vigilantes" will reappear.
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