For the first time since 2007, the United States has issued a 30-year Treasury bond with a yield of more than 5%, a development that is heightening concern in global financial markets.
In the US Treasury auction, the yield was 5.046% for securities totalling $25 billion, reflecting growing investor caution about the outlook for the US economy.
The pressures are mainly linked to renewed inflationary concerns, as the new energy crisis triggered by tensions with Iran has led to a significant rise in oil and energy prices.
Markets now believe that the Federal Reserve may keep interest rates high for longer or even consider new hikes in order to keep inflation in check.
Deutsche Bank’s strategic interest rate analyst Steven Cheng noted that the 5% level is traditionally seen as attractive for large institutional portfolios such as insurance funds and pension funds. However, he warned that if inflation expectations continue to deteriorate due to high energy prices, yields could move even higher.
The last time the US issued a 30-year bond with a 5% coupon was just before the 2008 global financial crisis. Since then, yields have remained significantly lower, even reaching an all-time low of 1.25% in 2020 during the pandemic.
The new rise in yields suggests the major change in the economic environment of recent years, as geopolitical tensions, increased public spending and persistent inflationary pressures drastically alter the equilibrium in bond markets.
At the same time, increased borrowing costs are putting additional pressure on the US economy at a time when US government debt is already at historically high levels.
The relatively weak demand recorded in both recent 3-year and 10-year issues reinforces the picture of growing investor caution towards US debt, with markets now demanding a higher risk premium for Washington’s funding.
