The 30-year US Treasury yield soars to its highest level in nearly 20 years! The Federal Reserve's pause triggers inflation fears, accelerating the global capital outflow.

Zhitong Finance APP noted that US Treasury bonds extended their decline as traders prepared for the release of US inflation data, which could confirm concerns that the Federal Reserve is acting too slowly in addressing rising prices.

On Thursday, US Treasury yields climbed again, with the 30-year yield rising 3 basis points to 5.23%, a nearly two-decade high. The 10-year Treasury yield rose 2 basis points to 4.7%.

Federal Reserve Chairman Kevin Walsh made hawkish remarks on inflation, but the central bank’s decision to keep rates unchanged on Wednesday sparked market fears that it is delaying an inevitable rate hike, causing the 30-year yield to surge as much as 14 basis points. Consumer prices are rising at a rate of 3.5%, and inflationary pressures have intensified further after Middle East conflicts flared up again, pushing oil prices above $100 per barrel in July.

Danske Bank chief analyst Jens Peter Sørensen said: "If inflation does not slow down, there is a further risk of long-term Treasury yields rising. The market can only guess how many more rate hikes are needed, and the timing of those hikes may be later than expected."

Now, Sørensen and others are closely watching the update of the Federal Reserve’s preferred inflation gauge to be released on Thursday.

US 30-year Treasury yield rises for the second consecutive day

According to a survey of economists, the month-on-month growth of the core PCE price index for June is expected to slow to 0.2% from 0.3% the previous month. The preliminary reading of second-quarter economic growth will also attract attention, with analysts forecasting a quarterly annualized growth rate of 2%, below the previous quarter’s 2.1%.

Walsh’s perceived inaction by the market has made bets on the direction of future interest rates in the swap market even more complicated.

Swap pricing shows the probability of a 25-basis point rate hike by the central bank in September is about two-thirds—an outcome that was fully priced in before policymakers held rates steady. The probability of a second rate hike by the end of this year has been halved to about 40%.

Breakeven inflation rate surges

Torsten Slok, chief economist at Apollo Global Management in New York, said, "We need to talk about the committee’s credibility," "You can’t just make verbal statements—you ultimately have to act."

The 30-year breakeven rate—a measure of inflation expectations—jumped 6 basis points on Wednesday, marking the largest single-day increase since the day after Trump’s victory in the November 2024 presidential election.

After the Federal Reserve meeting, some global bond investors are turning to markets such as Australia, the UK and Europe: Schroders is betting that short-end yields in these markets will fall, while shorting US 5-year and 10-year Treasuries.