30-Year US Treasury Yield Hits 19-Year High as Major Investor Demand Weakens, Driving Long-Term Rates Soaring

30-Year Treasury at 5.34%, Highest Since 2007

Public Sector Demand Weakens, Reliance on Private Investors Grows

AI Corporate Bonds and Fiscal Deficits Drive Global Surge in Long-Term Yields

Long-term U.S. Treasury yields are soaring to their highest levels in 19 years. As fiscal spending continues to expand and the supply of government bonds increases, demand from traditional long-term buyers such as central banks is weakening. Meanwhile, the surge in corporate bond issuance by big tech companies to fund expanded artificial intelligence (AI) investments is adding further upward pressure on long-term interest rates.

According to the Wall Street Journal (WSJ) and Bloomberg on August 18 (local time), the yield on 30-year U.S. Treasury bonds climbed to 5.33% during the session, marking the highest level since 2007, a 19-year high. The market increasingly views the recent rapid rise in long-term yields as a structural shift in bond supply and demand, driven by increased supply and changes in the investor base, rather than simply as a reaction to inflation concerns.

Bloomberg analyzed that the background for the recent global rise in long-term interest rates is a fundamental change in the investor base purchasing government bonds. In the past, long-term Treasuries were steadily purchased by relatively price-insensitive investors such as central banks. Recently, however, reliance has shifted toward private investors who are far more sensitive to returns.

New York Stock Exchange. New York, USA - Photo by Yoonju Hwang

At the Federal Reserve meeting in June, officials also discussed the shift in major U.S. Treasury holders, from public sector investors who are less responsive to price changes to private sector investors who are more price-sensitive. As the investor base that once reliably absorbed increased government bond supply weakens, the government is now forced to pay higher interest rates to secure long-term funding.

Anshul Pradhan, head of U.S. rates strategy at Barclays, analyzed that this shift in the investor base has increased the term premium of 30-year U.S. Treasuries by about 90 basis points over the past decade. The term premium is the additional yield that investors demand as compensation for the risk of holding long-term bonds.

While demand is weakening, the supply of bonds is growing rapidly. The U.S. annual fiscal deficit is approximately 2 trillion dollars, while national debt is nearing 40 trillion dollars. As bond issuance to fund this massive deficit continues, pressures in the long-term bond market are intensifying.

Adding to this, the boom in AI investments is causing a surge in long-term corporate bond issuance. As big tech companies actively tap the corporate bond market to raise funds for building data centers and AI infrastructure, government bonds and corporate bonds are now competing for long-term investor capital.

Barclays projects that the total issuance of U.S. investment-grade corporate bonds will reach a record 1.9 trillion dollars this year, a significant increase from last year’s 1.44 trillion dollars. In particular, as AI-related companies take on more debt and lengthen maturities, the supply pressure on long-term bond markets is increasing.

The international price of oil has also jumped since the war in Iran, further accelerating the rise in long-term interest rates. With Brent crude oil surpassing 90 dollars per barrel, there is mounting concern that rising energy prices could reignite global inflation.

Mohit Kumar, chief European economist at Jefferies, noted that long-term yields have largely been moving in line with oil prices lately, adding, “If oil goes above 90 dollars per barrel, worries about inflation become the dominant factor.”

The rise in long-term interest rates is also weighing on stock markets and the real economy. Technology and AI stocks, where expectations for future profits are heavily reflected in their share prices, face particularly strong pressure as rising rates lower the present value of future cash flows.

This is also a burden for the Trump Administration. Higher government bond yields not only increase the government’s interest expenses but also affect borrowing costs for households—such as mortgage loans—and businesses. The cumulative federal interest bill for the current fiscal year stands at 1.17 trillion dollars, a 15% increase over the same period last year.

This content was produced with the assistance of AI translation services.