Long-dated Treasury yields are lingering at levels not sustained since 2006, and investors are bracing for continued pressure in the coming weeks as massive fiscal deficits, a fresh wave of corporate debt issuance, and a potentially pivotal Federal Reserve meeting converge, according to market analysts tracked by financial media. The 30-year Treasury yield climbed to 5.34% in mid-August, marking its highest level since 2007 and sitting just 10 basis points shy of its 22-year peak.
Data shows that as of Monday, the yield has closed above 5% on 55 trading days since early January, the most annual sessions above that threshold since 2006. On Tuesday, it was trading at 5.27%. Despite Treasury Secretary Bessent's surprise announcement last month to expand buybacks of older bonds in an effort to curb the yield surge, many investors remain unconvinced that a sustained reversal is underway. Following a record issuance month in August, September is projected to bring $215 billion in corporate debt supply, which would offset the impact of Treasury purchases. Meanwhile, few expect concerns over the fiscal deficit that have been weighing on government bonds to dissipate anytime soon.
"Until welfare reform changes the deficit picture, long-end yields are likely to stay elevated," said John Briggs, head of U.S. rates strategy at Amundi's North American unit. "Buybacks are just a drop in the bucket." Yields above 5% on long-term bonds have brought the market back to levels last seen in 2006, and the upcoming Fed meeting will test Chairman Kevin Warsh's resolve to raise rates in the face of stubborn inflation. If the Fed hesitates, the selloff in long-dated Treasuries is expected to intensify further.
Following Warsh's hawkish speech at Jackson Hole last week, traders on Monday priced in nearly a 70% probability of a roughly 17-basis-point rate hike at the Fed's September 15-16 meeting. Friday's August employment report and key inflation data scheduled for September 11 will provide further evidence of building price pressures in the economy. Because longer-dated bonds are more vulnerable to inflation concerns, any indication that the Fed will hold rates steady even as consumer prices accelerate would give investors more reasons to steer clear of the beleaguered 30-year Treasury.
"If you want to push down long-end yields, you have to hike rates," said Gregory Faranello, head of U.S. rates trading and strategy at AmeriVet Securities, who expects the Fed to raise rates and favors Treasuries with tenors of 10 years or less. However, others have been betting on further weakness. Monday's options trading in Treasuries showed traders targeting higher levels for the 30-year yield, with one position wagering it would surge to around 5.7% before the contract expires on November 20.
The fragmented positioning in the 30-year Treasury within the $31 trillion U.S. government bond market adds further complexity. Demand for longer-dated Treasuries comes primarily from investors such as insurers and pension funds seeking to match liabilities spanning decades. Conversely, bond fund managers looking to reduce interest-rate sensitivity, or duration, in their portfolios tend to limit their long-end exposure.
"Despite Treasury buybacks and other recent policy measures, investors remain cautious about adding duration," wrote BofA rates strategists Megan Swiber and Eleanor Shaw in a note on Monday. "Shrinking official-sector buying makes the market increasingly reliant on price-sensitive private demand to absorb the steady drumbeat of Treasury supply." After yields have risen about 65 basis points from their lows this year, some investors question how much further long-dated Treasuries can fall. Briggs, a strategist at Natixis who had been bearish on the long end all year, has turned "more neutral" at current levels. The 30-year yield "is still grinding higher, but term premium and real yields have already come a long way. You don't have to keep going up at that pace forever," he said.
Priya Misra, a portfolio manager at JPMorgan Asset Management, said Treasury buybacks could help support demand for long-dated bonds but "will likely be dwarfed by the massive supply shock coming from AI infrastructure buildout." She added: "We may be nearing a peak in long-end yields, but with all the crosscurrents at play, uncertainty remains."
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