The 30-year US Treasury yield soared to a 20-year high! The Federal Reserve remains on hold, sparks inflation fears, and global capital is being withdrawn at an accelerated pace

The Zhitong Finance App notes that US Treasury bonds have extended their downward trend, and traders are preparing to meet US inflation data that may confirm concerns that “the Federal Reserve is slow to deal with rising prices.”

On Thursday, US Treasury yields climbed again. The 30-year Treasury yield rose 3 basis points to 5.23%, a new high in nearly two decades. 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 interest rate decision on Wednesday raised market concerns that it was delaying inevitable interest rate hikes, causing 30-year Treasury yields to soar by as much as 14 basis points at one point. Consumer prices are rising at a rate of 3.5%, and inflationary pressure intensified after renewed conflict in the Middle East led to oil prices breaking through $100 per barrel in July.

Jens Peter Sorensen, chief analyst at Danske Bank, said: “If inflation does not slow down, there is a risk that long-term treasury yields will rise further. The market can only guess how many interest rate hikes will be needed, and these rate hikes may arrive later than the market expected.”

Today, Sorenson and others are closely watching the US Federal Reserve's favorite inflation indicator update to be released on Thursday.

US 30-year Treasury yields rise for the second day in a row

According to a survey of economists, the month-on-month growth rate of the core PCE price index in June is expected to slow to 0.2% from 0.3% last month. Preliminary readings of economic growth data for the second quarter will also draw attention. Analysts forecast a quarterly growth rate of 2% on an annualized basis, down from 2.1% in the previous quarter.

Walsh's inaction, which is viewed by the market, makes betting on future interest rate trends in the swap market more complicated.

According to swap pricing, the probability that the central bank will raise interest rates by 25 basis points in September is about two-thirds — an outcome that was fully factored into the price until policymakers kept interest rates unchanged. The probability of a second rate hike by the end of this year has been halved to around 40%.

The inflation rate insurance rate soared

Thorsten Slock, chief economist at Apollo Global Management in New York, said, “We need to talk about the Commission's credibility,” and “you can't just talk about words — in the end, you have to act.”

The 30-year breakeven rate (the measure of inflation expectations) jumped 6 basis points on Wednesday, the biggest one-day increase since Trump won the presidential election in November 2024, the day after Trump won the presidential election in November 2024.

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