US bond sell-off drives 30-year yields to near-two decade high
Reflecting investor angst over rising government spending, the so-called long bond interest rate hits 5.31% on Aug 17, its loftiest since 2007
On August 17, the 30-year US bond interest rate soared to a near-two decade high of 5.31%, mirroring investor concerns over increasing government spending and persistent high inflation. This spike in the "long bond" yield surpassed a previous high from last month and reached levels not seen since 2007. The surge in yields was also observed in Canada and Europe, with Canadian 30-year securities reaching their highest level since 2010 and German rates hitting 2011 levels.
The rise in US yields and the widening yield curve, which currently stands at 113 basis points, signals a growing demand for compensation against the risk of persistent high inflation. This trend is further fueled by a surge in corporate borrowing for AI investments and declining demand from traditional bond buyers, compounded by the federal government's massive annual deficits of nearly US$2 trillion.
Barclays' Anshul Pradhan, head of US rates strategy, emphasized the need for a combination of factors to reverse the long-end sell-off, such as fiscal surprises, slower AI-related issuance, a shift in Treasury's issuance strategy, and sustained soft activity data. However, despite recent economic data indicating less pressure on the Federal Reserve to raise short-term interest rates, inflation remains well above the target of 2%.
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