The Treasury market touches a worrying milestone not seen since 2007

By Joy Wiltermuth

There are a host of challenges at work as the 'long' 30-year Treasury yield logs its longest stretch above 5% in 19 years

Treasury Secretary Scott Bessent testifies in April about the Treasury Department's proposed fiscal 2027 budget.

A renewed selloff in the $30 trillion Treasury market in July has the bond market at a worrying milestone.

The "long" 30-year Treasury yield BX:TMUBMUSD30Y on Tuesday hit 11 straight sessions above 5%, its longest stretch since May, when inflation concerns were driving the selloff.

It climbed another 1.6 basis points to 5.146% on Wednesday, marking the longest such stretch above 5% for the 30-year Treasury since 2007, as this chart from Dow Jones Market Data shows.

Inflation data eased in June, cooling along with oil prices and the U.S.-Iran ceasefire agreement. However, with the consumer-price index rate at 3.5%, it still isn't near the Federal Reserve's 2% target. Furthermore, the fragile Middle East peace has quickly evaporated, sending global Brent crude prices (BRN00) back above $94 a barrel.

"The biggest enemy" working against longer-duration bonds is inflation, said Dustin Reid, chief fixed-income strategist at Mackenzie Investments. "And if inflation is going to be higher for longer, then you need to be compensated for that."

Related: Jamie Dimon says he wouldn't buy Treasurys. 'I don't understand the upside.'

Treasury yields came off the recent highs as energy prices declined in June, but there's also been a steady barrage of longer-duration corporate-debt issuance from the "hyperscalers" of the artificial-intelligence spending race. Lately, that's become a heavier burden on the market.

This chart from BondCliQ shows just much debt has been issued in 2026, with the total outstanding from Microsoft (MSFT), Amazon (AMZN), Google-parent Alphabet (GOOG) (GOOGL), Nvidia (NVDA), Meta (META) and Oracle (ORCL) nearing $500 billion.

The AI debt boom is giving bond investors a lot more options beyond 30-year Treasury yields at 5%.

Investors like to say there's nothing "magical" about a 5% Treasury yield. It's a round number that gets people's attention - but it isn't something that suddenly forces the U.S. to stop borrowing in the open market.

The benchmark 10-year Treasury yield BX:TMUBMUSD10Y has kept below 5%. But at 4.657% on Wednesday, it was near the highs of the Iran war. That matters because it serves as a starting point for pricing new 30-year fixed-rate mortgages, which were last pegged at 6.55%, a threshold that can stop refinancing activity. The 2-year Treasury yield BX:TMUBMUSD02Y hit 4.301% on Wednesday, its highest since Feb. 2025, according to Dow Jones Market Data.

Unlike in 2023 and earlier this year, it's been tougher to quickly dislodge 5% 30-year Treasury yields once they hit, as the below chart shows. That makes it more expensive for the U.S. to manage its large debt load and deficit.

There isn't one "smoking gun" to this particular selloff, said Alexander Payne, Vanguard's head of mortgages, agencies and volatility. But there hasn't been a rush to quickly "snap it up" either.

Given the large U.S. deficit and the historic spending spree expected for the AI buildout, "there will be plenty of chances to buy at higher yields in longer-duration debt," Payne said. "That's the one [thing] that feels like a little bit unique to the moment."

Defense Secretary Pete Hegseth, testifying Tuesday on Capitol Hill, estimated the Iran war has already cost $37.5 billion. The Trump administration is requesting a supplemental $67 billion to help fund the escalating conflict. This comes as U.S. debt already topped 100% of gross domestic product this spring.

Meanwhile, there has been less of a presence of foreign buyers in the Treasury market in recent decades, despite the growing issuance need as the U.S. debt jumps to nearly $40 trillion.

"I think there's a handoff that needs to occur from foreign buyers in the U.S. Treasury market to domestic holders," said Brij Khurana, fixed-income portfolio manager at Wellington Managements. "But they are probably only wanting to do it when stocks are going down," he said. "If stocks crack, bonds will do a much better job."

Reid at Mackenzie said that if the 30-year yield hits 5.25%, he would expect the Treasury Department to start getting uncomfortable. "They don't want the back end [of the Treasury curve] flying away too much," he said. Because that "certainly would cause some risk around equities and valuations."

Stocks fell Wednesday, but the S&P 500 SPX still was up 9.5% on the year. The Dow Jones Industrial Average DJIA is 8.7% higher year to date and the Nasdaq Composite Index COMP has risen 10.5%, according to FactSet.

-Joy Wiltermuth

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07-22-26 1613ET