Inflation concerns trigger a global bond market sell-off, with the 30-year U.S. Treasury yield surging to 5.18%, the highest since 2007.

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Inflation concerns reignite, sending the global bond market into a new round of turmoil.

On Tuesday, the yield on the U.S. 30-year Treasury rose by 5 basis points to 5.18%, reaching its highest level since 2007; the two-year yield climbed to 4.11%, a new high since February 2025. This continues the weeks-long trend of persistent bond market weakness and rising yields.

The driving factors behind this round of sell-off are the inflationary pressures from war-induced higher energy prices, as well as deep concerns in the market over an expanding fiscal deficit.

Previously, most investors viewed 5% as the "psychological barrier" for the 30-year Treasury yield, expecting that a breakthrough would trigger dip buying. However, the rapid recent surge in long-term rates is breaking this assumption, possibly signaling that this $31 trillion market is entering a new era.

According to a previous WallstreetCN article, Citi macro rates strategist Jim McCormick stated that traders have now set 5.5% as the next key level for the 30-year Treasury yield. He noted that core inflation has not eased significantly and the U.S. economy remains resilient, which means the Federal Reserve is unlikely to cut rates in the short term. Investors are reassessing the risk-reward of holding long-term Treasuries.

Dual Pressure from Inflation and Fiscal Concerns: Pessimism Over Long-Term Bonds Spreads

Institutional investors are increasingly pessimistic about long-end bonds. Ajay Rajadhyaksha, Chairman of Barclays Global Research, said: "There's virtually no reason to pursue long-end assets when debt is growing faster than the economy, inflation prospects are worsening, and there is no political will for fiscal reform."

This statement reflects the market’s deep embrace of the “higher-for-longer rates” narrative. With inflation expectations and fiscal worries overlapping, investors are being forced to reassess their views on the Fed’s policy path, putting systematic adjustment pressure on positions built on rate-cut expectations.

Pricing in the interest rate swap market is especially noteworthy. Data shows bets on another Fed rate hike are heating up, in sharp contrast to the multiple rate cuts expected before the war, reflecting a substantial change in investors' views on the persistence of inflation.

As the global benchmark anchor for asset pricing, persistently rising long-end Treasury yields are transmitting into the real economy through mortgage rates, corporate financing costs, etc., broadly affecting the global lending environment.

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