The pressure to sell off US long-term bonds has intensified! Government debt is approaching 40 trillion US dollars, and 30-year yields are approaching the highest level of this century

The Zhitong Finance App learned that US Treasury yields have continued to rise recently, and long-term bonds in particular are under obvious selling pressure. At a time when the size of the US government debt is approaching 40 trillion US dollars, higher interest rates are driving up the federal government's financing costs and increasing market concerns about fiscal sustainability.

The current round of rising US bond yields began in June, and the performance of medium- to long-term bonds was particularly weak. The 30-year US Treasury yield once cumulatively rose by more than 40 basis points from the low at the end of June, and is now close to the highest level since the beginning of this century. Yields on US bonds with other maturities are also generally higher.

Fixed-income strategists believe that this round of growth is not driven by a single factor, but rather the result of a combination of factors such as the widening US fiscal deficit, continuing higher inflation than the Federal Reserve's 2% target, a surge in corporate bond issuance, and rising term premiums.

Anshul Pradhan, head of US interest rate research at Barclays Capital, pointed out that these pressures themselves are not new, and the rise in long-term yields is gradually occurring. What is really noteworthy is that these factors are now strong enough to overcome some of the weak economic data. He said that there are three independent economic data this month that should have driven yields down, but long-term US bond yields continue to rise.

There has actually been an improvement in recent US inflation data. Overall changes in consumer prices and producer prices were limited in July. After excluding food and energy, the core inflation rate was 2.5%, which basically returned to the level before the outbreak of the war in Iran at the end of February this year. However, the trend in the US bond market shows that investors are currently concerned about more than just inflation.

The US fiscal situation is becoming one of the main pressures on long-term bonds. The US fiscal deficit reached 432.3 billion US dollars in July, the largest monthly deficit since March 2021, and may bring the deficit for the full year ending in September to about 2 trillion US dollars.

Meanwhile, the total debt of the US government is approaching 40 trillion US dollars, of which the size of federal debt held by the public is about to reach 100% of the US gross domestic product (GDP).

High interest rates have also further increased the government's debt repayment burden. As of July, the cumulative cost of US debt financing this fiscal year reached 1.12 trillion US dollars, and is expected to reach 1.37 trillion US dollars for the whole year, an increase of about 84 billion US dollars over 2025. In terms of net expenditure, debt financing has now become one of the major expenditure items of the US government after social security and health insurance.

Ed Yardeni, founder of Yardeni Associates, believes that the US bond market is gradually approaching the tipping point where so-called “bond police” are beginning to express dissatisfaction with the financial situation. This concept means that bond investors sell treasury bonds due to concerns about government fiscal discipline, inflation, etc., thereby forcing policy makers to make adjustments by boosting yields.

Yardeni said investors are worried not only that the Federal Reserve is not active enough in controlling inflation, but also about rising oil prices. However, at the same time, he believes that if the US economy itself is not strong enough, it will be difficult for US bond yields to maintain the current level, so the current high yield also reflects the market's recognition of the resilience of the US economy to a certain extent.

In addition to the government's own huge financing needs, the wave of corporate debt issuance triggered by the AI investment boom is also competing with US Treasury bonds for investors' capital.

According to data from the American Securities Industry and Financial Markets Association, US companies have issued nearly 1.7 trillion US dollars in bonds since this year, an increase of 27% over the previous year, and has even surpassed the issuance scale for the whole of 2025. As technology companies and other companies invest huge sums of money to build AI data centers and related infrastructure, capital market financing requirements are rapidly increasing.

Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, pointed out that in addition to the increase in government debt, record corporate bond issuance has further increased the supply of long-term bonds in the US fixed income market, which has had an impact on overall yields, yield curves, and term premiums.

He believes that unless the supply of long-term bonds is significantly reduced, the financial environment is drastically tightened, or the outlook for the US economy deteriorates markedly, it is likely that long-term US bond yields will continue to run upward in the short term.

The uncertainty of the Federal Reserve's policy has also become another source of pressure on the bond market. Federal Reserve Chairman Walsh has always been cautious about future interest rate paths, reducing forward-looking guidance on the market. With the Federal Reserve keeping the federal funds rate at 3.50% to 3.75% this year, the transparency of central bank policy communication has declined, making the bond market, which is already facing multiple pressures, more cautious.

Currently, the market believes that the possibility that the Fed will raise interest rates in September is low, and it is expected that there will be a high probability that it will raise interest rates again until December. This has also led some investors to question whether the Federal Reserve's determination to push inflation back to the 2% target is as firm as its public statement.

However, Yardeni believes that it is not entirely a bad thing for the US bond market to reduce its dependence on the Federal Reserve's policies. As yields rise to more attractive levels, new buys may eventually re-enter the market. He believes that currently interest rates are increasingly determined by the market's own capital supply and demand and risk pricing, and the US bond market is returning to a more market-based operating mechanism.