U.S. 30-Year Treasury Yield Hits 2004 High

The selloff matters because it raises the cost of capital across the economy. Higher Treasury yields feed through to mortgages, corporate borrowing, municipal financing and the government’s own debt service bill, tightening financial conditions even before the Federal Reserve delivers more rate hikes. Swaps now fully price in three quarter-point Fed increases over the next year, with some hedging for a fourth.

Oil prices have become a dominant driver for rates since the U.S. attacked Iran in late February, and Thursday’s surge — as much as 5% — reinforced the view that the war is adding a fresh inflation shock. Two-year yields are up more than 150 basis points since the conflict began, while 30-year yields have risen more than 80 basis points.

The Treasury’s expanded buyback program, designed to ease pressure in the long end, did not fully calm the market. The department accepted $4.08 billion of the $6 billion maximum it targeted in a 20- to 30-year operation, disappointing traders who expected stronger support after recent volatility. A separate $44 billion seven-year note auction also cleared at 5.085%, the highest on record since that tenor was reintroduced in 2009.

Rising volatility is making investors wary of stepping in even at higher yields. The ICE BofA MOVE Index, a gauge of bond-market swings, climbed to its highest since March, and strategists said many buyers remain afraid of catching a falling knife. That leaves the market vulnerable to further losses if oil keeps rising, inflation stays sticky or the Fed signals more tightening.

The pressure is not confined to the U.S. European yields are climbing too, Japan’s government-bond market reopened to levels last seen in 1996, and the average yield on sovereign debt worldwide is now near 4%, the highest since 2007. For investors, that raises the appeal of income, but also the risk of further price declines in long-duration bonds if the selloff extends.