US 30-year Treasury yield's run above 5% longest since 2006

The yield on the 30-year US Treasury bond has been running at elevated levels for longer than at any point since 2006.

Bloomberg data show the 30-year yield topped 5 percent on 55 days so far this year through Monday (local time) — the most since 2006.

The yield surged to 5.34 percent in mid-August, its highest since 2007, and stood at 5.27 percent as of Tuesday.

Bloomberg cited massive fiscal deficits, a surge in corporate bond issuance to fund AI infrastructure investment, and uncertainty over Federal Reserve monetary policy as the main drivers behind the rise in long-term yields.

Markets were rattled on Aug. 19 when Treasury Secretary Scott Bessent announced he would at least double the size of long-term Treasury buybacks — from $2 billion per operation to at least $4 billion. Bloomberg said markets do not expect the rate trajectory to change quickly, as the buyback program is being offset by a flood of corporate bond issuance driven by the AI boom.

US corporate bond issuance hit a record high last month and is on track for $215 billion in September.

Analysts say concerns about the federal government's fiscal deficit are unlikely to ease anytime soon. "Long-term Treasury yields will remain elevated until welfare entitlement reform changes the fiscal picture," said John Briggs, head of US rates strategy at Natixis North America. "The buyback program is a drop in the bucket."

Whether the Fed will raise interest rates in September is also drawing close attention. Analysts warn that if the Fed hesitates to hike amid solid economic growth and rising energy prices driven by war, selling pressure on long-term Treasuries could intensify.

"The Fed needs to raise rates to bring long-term bond yields down," said Gregory Faranello, head of US rates strategy at AmeriVet Securities. He expects the Fed to raise rates at its upcoming meeting and expressed an optimistic outlook for 10-year and shorter-maturity bonds.

Others, however, see yields climbing further. Treasury options trading on Monday showed many traders betting that the 30-year yield would rise even higher, with some wagers placing it at 5.7 percent before the Nov. 20 expiration.

Bank of America rate strategists Megan Swiber and Eleanor Xiao said in a Monday report that "despite the Treasury's buybacks and recent policy measures, investors still remain reluctant to add long-duration exposure," adding that "with public-sector buying fading, the market is increasingly relying on price-sensitive private demand to absorb the continued supply of Treasuries."