30-year US Treasury yield hits highest since 2007, August US investment-grade bond issuance hits record high for the period

The continued rise in long-term US Treasury yields reflects deep market concerns over the expansion of fiscal deficits, long-term inflation risks, and the Federal Reserve's policy trajectory.

The 30-year US Treasury yield climbed above 5.31% on Monday, marking the highest level since June 2007 and extending last week’s selling momentum.

Just before this, the US Treasury completed a $25 billion auction of 30-year bonds at a yield of 5.216%, the highest rate for a similar auction since 2001; the 10-year auction yield also reached a peak not seen since 2007.

The rising yields have already transmitted into the real economy, pushing up mortgage and other credit costs. Early last year, Trump administration officials predicted that fiscal policy would suppress long-term rates, but market movements have diverged sharply. Meanwhile, Canadian 30-year bond yields rose to the highest level since 2010, and there was spillover in the European bond market as well.

Multiple Pressures Combine, Long-End Rates Hard to Fall

This round of long-end bond sell-offs is not driven by a single factor.

The federal government’s nearly $2 trillion annual fiscal deficit continues to increase treasury supply, while corporations are issuing massive amounts of debt to support the AI investment boom, further worsening the supply-demand imbalance in the long-duration bond market. At the same time, demand from traditional long-bond buyers is shrinking, heightening market absorption pressures.

Barclays Head of Rates Strategy, Anshul Pradhan, commented:

"We have consistently advised against betting on a quick end to the long-end selloff, and this view remains unchanged. Optimism on the long end would require multiple factors to align: an unexpectedly sharp fiscal contraction, a slowdown in AI-related debt issuance, adjustments to the Treasury’s issuance strategy, and persistently weak economic data."

Nohshad Shah, Head of EMEA Fixed Income Sales at Citadel Securities, noted in a client report that despite policy rates being 175 basis points below their peak, long-end yields remain near 20-year highs.

"To me, this reflects the market’s expectation that, faced with tough decisions, both the Federal Reserve and fiscal authorities tend to opt for the easier path. As long as this expectation persists, it will continue to pose risks to the entire market."

US Investment-Grade Bond Issuance Hits August Record High

The volume of US investment-grade bond issuance has hit a new monthly record for the third straight month. As companies continue ramping up investment in AI infrastructure, financing needs are surging, and the US investment-grade bond market is issuing debt at an unprecedented speed.

According to Bloomberg, as of August 17th, US investment-grade bond issuance in August had reached $145.2 billion, overtaking the previous monthly record of $136 billion set in August 2020.

So far this year, cumulative issuance of US investment-grade bonds has reached $1.46 trillion, 8.5% higher than the same period in 2020. That year, pandemic-era financing drove annual investment-grade debt issuance to a historic high.

Tech companies are the main drivers of financing. Data shows the largest single bond issuance in August came from Alphabet, with a size of $25 billion.

This marks the eighth US investment-grade bond deal of $25 billion or more this year, with all eight of these large transactions coming from tech companies.

Looking ahead, financing needs from tech companies may continue to rise. J.P. Morgan recently raised its forecast for dollar bond issuance from technology, media, and telecom (TMT) companies in 2026 by about 20% to $540 billion.

Economic Data Weakens, but Inflation Pressures Persist

A recent string of weak data has given the market some short-term relief, but has not fundamentally changed the upward momentum in long-end rates.

Last week’s data showed core inflation declining, July employment in the US saw an unexpected drop, and month-on-month retail sales posted the largest decrease in over a year. In addition, the Producer Price Index was flat month-on-month in July.

Signs of economic cooling have reduced market expectations for a Fed rate hike in September, while prompting a steeper yield curve—the spread between 2-year and 30-year Treasury yields expanded to 114 basis points, the highest since April.

However, inflation remains far from the Federal Reserve’s 2% target. Last month, the Consumer Price Index rose 3.4% year-on-year, and Shah warned that over 55% of core goods prices are still rising. Therefore, recent improvements in inflation should not be interpreted as a policy pivot. He characterized the September policy meeting as "hard to forecast."

On July 29th, the Federal Reserve voted 9-3 to leave rates unchanged between 3.50% and 3.75% for the fifth consecutive meeting. The three dissenters—Cleveland Fed’s Beth Hammack, Minneapolis Fed’s Neel Kashkari, and Dallas Fed’s Lorie Logan—all advocated for a 25 basis-point hike.

The market is now awaiting Wednesday’s release of the July FOMC minutes for further clues on the policy outlook.

Global Resonance, Asset Allocation Logic Reassessed

This round of rising long-end rates has become a global phenomenon, with investors worldwide demanding higher premiums to hedge against persistent inflation risks.

Canada and European bond markets have also moved in tandem, indicating an ongoing structural repricing of the global bond market.

Regarding the AI investment trend, Shah noted that investment logic is shifting from frontier model development to cloud infrastructure. Hyperscale cloud providers like Microsoft and Google are expected to monetize AI through compute, inference, and distribution capabilities, offering clearer returns compared to frontier names like OpenAI and Anthropic.

The Personal Consumption Expenditures Price Index, which aligns with the Fed’s 2% inflation target, will be released on August 26th and may provide further market guidance on policy direction.