US 30-Year Treasury Yields Stay Above 5% As Rate Cuts Recede

As hopes fade for lower interest rates in the United States, 30-year Treasury yields have remained above 5 per cent for one of their longest stretches in nearly two decades, fuelling debate over whether elevated borrowing costs are here to stay or may be approaching a ceiling.

The long bond’s yield traded above 5 percent for a 13th consecutive trading day the longest sustained streak since 2007. The extended duration has raised alarm among investors and analysts assessing the implications for global asset allocation, as higher risk-free yields raised the bar for equities and other riskier investments.

For Cliff Zhao, chief economist at CCB International in Hong Kong, and the bank’s global strategist Vera Jiang, yields hovering around 5 per cent were “likely to become more common” than in the past. While short-term yields largely tracked Federal Reserve policy expectations, long-dated Treasury yields increasingly reflected concerns over Washington’s fiscal sustainability, with investors demanding greater compensation for holding US government debt over longer horizons, they added.

“While unlikely to trigger a debt crisis in the near term, persistently elevated yields could constrain room for future fiscal policy and lead investors to demand a higher long-term risk premium,” they said.

That demand comes as investors increasingly price in America’s swelling debt burden and growing fiscal concerns as drivers for long-dated Treasury yields, particularly in the wake of last year’s passing of US President Donald Trump’s “One Big Beautiful Bill Act” – which promised record tax cuts while raising spending on defence and border security. Geopolitical pressures are also complicating the fiscal backdrop. Bosco Wu, an investment strategist at Bank of East Asia, said additional defence spending linked to the Iran war, coupled with uncertain tariff revenues, could add upwards pressure on long-term Treasury yields.

But he added that the recent 30-year yields trading between 5.1 and 5.2 per cent were already approaching the upper end of his forecast, leaving “limited upside” from current levels unless renewed inflationary pressures forced the Federal Reserve to adopt a more hawkish stance.

Ahead of the Fed’s scheduled policy meeting next week, investors have largely ruled out near-term rate cuts, with attention turning to whether policymakers will keep rates unchanged or resume tightening should inflation remain stubborn.

Markets had priced in about a 66.3 per cent chance of no change at the Fed meeting, with a 25-basis-point rise accounting for the remainder, according to data from the CME Group’s FedWatch tool on Friday.

“From a data perspective, there is no reason to expect a change in policy rates at the next Federal Open Market Committee meeting,” said Christian Scherrmann, chief US economist at DWS Group, in a Friday statement.

Karsten Junius, chief economist at Bank J. Safra Sarasin, said in a commentary earlier this week that June’s “surprisingly soft” inflation figures had “removed the urgency for the Fed to act”, while underlying price pressures remained elevated. Meanwhile, as higher Treasury yields reset the benchmark for global financial markets, analysts are weighing how the shift could reshape asset allocation strategies.

Cash, money market funds and short-duration US Treasuries remained attractive, while longer-dated bonds were more volatile despite offering higher yields, said Zhao and Jiang of CCB International.

Within equity markets, they said, higher Treasury yields would make investors value companies with strong earnings, cash flow and productive investments more highly, while weighing on highly valued, highly leveraged companies whose growth depends on future profits.

Artificial intelligence-related stocks, which have enjoyed a surge of investor enthusiasm and attracted substantial capital inflows, have recently seen a global sell-off as concerns over returns on AI spending grow alongside persistent inflation concerns.

“For Chinese assets, the impact is mainly transmitted through the US dollar, the yuan exchange rate and overseas liquidity,” Zhao and Jiang said, noting that A-shares and Chinese government bonds were more closely tied to domestic conditions and policies.

Wu from Bank of East Asia said investors remained willing to hold US dollar assets given their safe-haven appeal and the strength of American equity markets, but noted they were gradually seeking to diversify their portfolios.