The yield on the 30-year U.S. Treasury climbed as high as 5.44% on Thursday — its highest level since 2004 — capping a selloff that has pushed yields across nearly the entire Treasury curve above 5% for the first time since the 2007–08 era. The move accelerated after last week's Federal Reserve rate hike, with strong economic data and a jump in oil prices adding fuel this week. Notably, a Treasury buyback of up to $6 billion in long-dated bonds, announced Tuesday, failed to slow the climb.
Why are yields rising? Investors are demanding more compensation to lend money to the U.S. government for decades at a time. Three forces are at work: inflation that has run above the Fed's 2% target for five years (with elevated energy prices adding pressure), heavy government borrowing to fund large deficits, and expectations that the Fed may raise rates again before year-end. As one portfolio manager put it, investors locking up money for 30 years simply want to be paid more for the risk.
For households and investors, this cuts both ways. Higher long-term yields mean higher borrowing costs — the average 30-year mortgage is now above 7% — and rising yields have historically been a headwind for stock valuations. On the other hand, bonds now offer the most attractive income in a generation: savers and income-focused investors can earn 5%+ on high-quality government debt without taking equity risk. As always, the right response isn't to chase headlines but to make sure your mix of stocks and bonds still matches your goals and time horizon.
Sources: Bloomberg via Yahoo! Finance, Investing.com
Important note and disclosure: This article is intended to be informational in nature; it should not be used as the basis for investment decisions. You should seek the advice of an investment professional who understands your particular situation before making any investment decisions.
