30-Year Yield Rises to Highest Level Since 2007 as Oil and Treasury Supply Bite Bonds

The Treasury selloff has intensified, driving the 30-Year U.S. Treasury yield to its highest level in over 19 years.

On Monday, the the 30-year yield settled at 5.310%, its highest settlement since 5.356% on June 12, 2007. The yield rise comes alongside a gain of 2.6% in oil prices on Monday, as measured by the U.S. benchmark West Texas Intermediate (WTI) crude oil.

Generally, higher oil prices will cause shorter-duration yields to rise, in response to market expectations that the Federal Reserve will raise interest rates (or delay cutting them) in order to tackle inflation.

But recently, longer-term Treasuries have been very reactive to oil prices. WTI and the 30-year yield have a 10-day correlation coefficient of 0.85 as of Friday—a very close relationship, given that a correlation of one would mean they they have been moving in lockstep. The correlation was near zero on July 23, meaning there had been no statistical relationship.

The 10-year yield is also moving in tandem with oil, with its correlation at 0.87 on Friday, up from similar lows in July.

To Shriya Samarth, EMEA head of rates at StoneX, this indicates that “inflation in some way, shape, or form is here to stay because of oil. And we’re just going to have to learn how to trade that.”

To be sure, the outright level of oil is not concerning; WTI is at $84.50 per barrel, well below the $112.95 high seen in April. Plus, a softer print on retail sales on Friday and benign data on July wage gains should have signaled to investors that additional pass-through risk to inflation is low.

Still, “the market appears unwilling to push yields materially lower even with the shift in the broader trajectory of the realized data,” writes Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. “Suffice it to say, the energy sector remains a potential bearish trigger.”

The 30-year yield has now been above the 5% threshold for the past 30 trading days.

In addition to oil, another bearish driver for bonds could be supply. Investors had to digest $125 billion in medium- and long-term Treasury debt last week.

More generally, elevated debt levels have contributed to higher term premiums, which reflect the additional return or yield investors demand for holding relatively riskier long-term debt instead of less risky shorter-term debt. The term premium was at 0.83% on Wednesday, around the upper end of the 2026 highs.

“More debt means more duration supply that must be taken down by the bond market, which all else equal implies a higher required excess return, i.e., term premium,” says Gerard MacDonell, an economist at 22V Research.

All told, 30-year Treasuries have serious problems to contend with—which means yields could continue to rise through the summer.