The yield on the 30-year U.S. Treasury bond climbed above 5.33% on Tuesday, reaching a 19-year high not seen since 2002. The move reflects deepening concern among investors about the U.S. fiscal outlook and persistently high inflation.
The 10-year Treasury note yield, which serves as a benchmark for mortgages, auto loans, and credit card debt, edged up to 4.732%. The 2-year note, which tends to track Federal Reserve rate decisions more closely, rose slightly to 4.186%.
According to CNBC, the moves followed news that the U.S. fiscal deficit hit $432.3 billion in July, its highest monthly total since March 2021. That pushed the year-to-date shortfall to nearly $1.8 trillion. Interest payments on the nearly $40 trillion national debt have cost the government approximately $1.2 trillion so far this year.
Inflation added to the pressure. While overall price increases remained low in June and July, the annual rate remains well above the Federal Reserve's 2% target. U.S. import prices fell 0.4% in July, against economists' expectations of a 0.1% gain, according to a Dow Jones poll.
Geopolitical developments also rattled bond markets. The 60-day deadline for the U.S. and Iran to reach a peace deal expired Monday, with Iran ruling out an extension, according to state media. A senior Iranian official told Reuters that Tehran would take an offensive stance if diplomacy with the U.S. fails. Oil prices rose following the news.
Deutsche Bank's Jim Reid addressed the situation in a note on Tuesday. "Markets have seen growing weakness over the last 24 hours, with bonds and equities slipping thanks to negative geopolitical headlines from the Middle East," Reid wrote. "There wasn't a single catalyst for the declines, but with few signs of the US and Iran coming to any sort of a deal, that meant investors priced in a more extended closure of the Strait of Hormuz."
The bond market turbulence extended well beyond U.S. borders. Japan's 10-year bond yield hit a 30-year high. Germany's 30-year bond yield reached its highest point since 2011. France's 30-year government bond yield rose to a post-2008 high. British government bond yields also advanced. The pattern points to a broad global repricing of long-duration government debt as inflation fears spread across major economies.
