Selling Pressure on US Long-Term Treasuries Intensifies! Government Debt Nears $40 Trillion, 30-Year Yield Approaches Century Highs

According to Zhitong Finance APP, U.S. Treasury yields have been rising recently, with long-term bonds under significant selling pressure. As U.S. government debt approaches $40 trillion, further increases in interest rates are pushing up federal government borrowing costs and intensifying market concerns about fiscal sustainability.

This round of rising U.S. Treasury yields began in June, with long-term bonds performing particularly weakly. The 30-year Treasury yield has surged more than 40 basis points from the late June low and is now near its highest level since the early 2000s. Yields on Treasuries of other maturities have also generally increased.

Fixed income strategists believe this surge has not been driven by a single factor, but is instead the result of multiple influences including a widening fiscal deficit, inflation remaining persistently above the Federal Reserve’s 2% target, a surge in corporate bond issuance, and rising term premiums.

Barclays Capital’s Head of US Rates Research, Anshul Pradhan, pointed out that these pressures themselves are not new, and the rise in long-term yields has been gradual. What’s truly noteworthy is that these factors have now become strong enough to outweigh some weaker economic data. He said that three independent economic indicators this month should have pushed yields lower, but long-term Treasury yields have continued to climb.

Recently, U.S. inflation data has shown some improvement. In July, consumer and producer prices showed little overall change, and core inflation, excluding food and energy, stood at 2.5%, basically returning to the level before the outbreak of the Iran war at the end of February this year. However, movements in the Treasury market show that investors are currently worried about more than just inflation.

The U.S. fiscal situation has become one of the main pressures facing long-term bonds. The U.S. fiscal deficit reached $432.3 billion in July, the largest single-month deficit since March 2021, possibly pushing the total deficit for the fiscal year ending in September to around $2 trillion.

At the same time, total U.S. government debt is nearing $40 trillion, with federal debt held by the public set to reach 100% of U.S. Gross Domestic Product (GDP).

High interest rates are also increasing the government’s debt servicing burden. As of July, the cumulative cost of U.S. government debt financing for this fiscal year reached $1.12 trillion and is expected to hit $1.37 trillion for the full year, up about $84 billion from 2025. In terms of net spending, debt financing has already become one of the main expenditures for the U.S. government, second only to Social Security and Medicare.

Ed Yardeni, founder of Yardeni Associates, believes the Treasury market is gradually approaching a so-called “bond vigilante” tipping point where investors express disappointment over fiscal conditions. This concept refers to bond investors selling off government bonds over concerns about fiscal discipline and inflation, pushing yields higher and thereby forcing policymakers to make adjustments.

Yardeni noted that investors are worried that the Federal Reserve is not acting aggressively enough to curb inflation, and are also concerned about rising oil prices. However, he also believes that unless the U.S. economy is sufficiently robust, Treasury yields are unlikely to remain at current levels, so the currently elevated yields also reflect market recognition of the U.S. economy’s resilience to some extent.

In addition to the government’s massive financing needs, the AI investment boom is triggering a wave of corporate bond issuance, which is also competing with U.S. Treasuries for investor funds.

According to data from the Securities Industry and Financial Markets Association, U.S. corporations have issued nearly $1.7 trillion in bonds so far this year, a 27% year-on-year increase, already exceeding the total issuance for all of 2025. As technology companies and others invest heavily in building AI data centers and related infrastructure, capital market financing demand is rising rapidly.

BMO Capital Markets’ head of U.S. rate strategy, Ian Lyngen, pointed out that aside from growing government debt, record corporate bond issuance has further increased the supply of long-term bonds in the U.S. fixed income market, impacting overall yields, the yield curve, and term premiums.

He believes that unless long-term bond supply is significantly reduced, financial conditions tighten sharply, or the U.S. economic outlook deteriorates significantly, it will be easier for long-term Treasury yields to keep moving upward in the short term.

Uncertainty over Federal Reserve policy is also adding pressure to the bond market. Fed Chair Powell has remained cautious about the future path of rates, reducing forward guidance to the market. With the Fed holding the federal funds rate between 3.50% and 3.75% this year, less transparency in Fed communications has made the already pressured bond market even more cautious.

Currently, the market sees a low probability of a Fed rate hike in September, and expects there won’t be a high likelihood of another hike until December. This has also led some investors to question whether the Fed’s resolve to bring inflation back to its 2% target is as strong as their public statements suggest.

However, Yardeni believes that the Treasury market becoming less reliant on Fed policy guidance is not necessarily a bad thing. As yields rise to more attractive levels, new buying interest may eventually return to the market. He points out that interest rates are now increasingly being determined by the market’s own supply and demand and risk pricing, indicating that the Treasury market is returning to a more market-driven approach.