The yield on 30-year U.S. government debt hovered around 5% on Tuesday after breaching that level for the first time since July at the start of the week, a move that kept pressure on bond markets and sharpened concern over borrowing costs. As of 6:42 a.m., the yield was 5.01%, after hitting 5.03% on Monday.
The latest climb was driven by fresh concern over inflation and the possibility of fewer interest-rate cuts, with oil prices soaring while the Strait of Hormuz remained shuttered. A torrent of company spending on artificial intelligence was also adding to fears that price growth could accelerate in the short term, keeping investors wary of bonds that had already been sold off sharply.
For markets, 5% is more than a round number. A yield at or beyond that level makes the budget and the growing debt-servicing costs for the U.S. government more urgent, and it could also raise mortgage rates and hurt consumers. The move comes against a backdrop in which economic data before the outbreak of war on Feb. 28 suggested inflation globally was not slowing as quickly as expected.
Vivek Paul said the bond market had already adjusted to a different outlook on rates. “We’ve seen bonds reprice because the expectation of rates staying higher for longer, or not having as many cuts, has changed, and I think that’s rational,” he said. He added that the U.S. economy remained in reasonable health.
That is what makes the move uncomfortable rather than dramatic: the selloff is not being driven by panic over growth, but by a market that is steadily marking up the cost of money and marking down the odds of relief. With 5% now acting as a line in the sand for some investors, the next question is whether inflation pressures ease enough to pull yields back, or whether the market keeps pushing that threshold higher.
