(Bloomberg) -- Yields on the US's longest-dated bonds climbed to the highest level in more than two decades, the latest milestone in a global selloff driven by inflation fears and concern about government debt burdens.
A fresh jump in oil prices on Thursday lifted five- to 30-year Treasury yields to new multiyear highs in choppy US trading, with the 30-year rising as much as seven basis points to 5.47%, its highest since 2004. The latest leg higher came after the US Treasury Department bought fewer bonds than expected in its second expanded buyback operation.
"It's the aftermath of an explosion," said Bryce Doty, a bond fund manager at Sit Investment Associates. "People are trying to pick through the debris for clues — is this an overreaction or the beginning of another move upward in yields?"
The rise in oil prices and broad inflation gauges over the past six months led the Federal Reserve to raise interest rates last week for the first time since 2023, and expectations for additional increases over the coming year have picked up. Swaps now fully reflect three quarter-point hikes over the next year from the Fed, with significant hedging for a fourth.
Oil prices — a dominant driver of Treasury yields since the US attacked Iran in late February, causing a Middle East supply shock — climbed as much as 5% Thursday after Iran threatened to expand the war.
In the Treasury market, two-year yields have climbed over 150 basis points since the start of the US-Iran war, while those on the 30-year are up over 80 basis points.
Mounting borrowing costs are a threat to the Republican majorities in congress in the November midterm elections, as dissatisfaction over lofty mortgage rates and the cost of living rises. US President Donald Trump has called for US interest rates to be "1%, or less" and criticized what he called a "hostile" Fed board for the decision to raise rates.
The continued yield rise undercuts the Treasury's efforts to bring down long-term borrowing costs: Treasury Secretary Scott Bessent expanded the government's bond buyback program in mid-August in an effort to ease pressure.
On Thursday, the department accepted $4.08 billion of the $6 billion maximum it targeted in an operation for 20- to 30-year securities. Yields rose, signaling disappointment with the outcome. The Treasury also bought back less than it sought at its in first expanded buyback on Sept. 10.
"What surprised the market was that they didn't go to the full $6 billion after how much we've had a selloff in the last few days," said Brij Khurana, a portfolio manager at Wellington Management. "I thought the purpose of the buybacks was to deal with drastic or illiquid price movement, and you could kind of argue that yesterday was that day."
To Khurana, it leads to the question: "If they're not going to buy back the max amount after these conditions, when are they going to?"
US five-year yields topped 5% for the first time since 2007 Wednesday — the market's worst day in months as measured by the Bloomberg Treasury Index's 0.73% loss — while those on 10-year jumped the most since the Liberation Day tariff shock in April 2025.
Global Selloff
The selloff extended to other major global bond markets, with European yields also mostly on the rise, and those on Japan's government debt hitting levels last seen in 1996 as the market reopened after a three-day break.
The average yield on government debt worldwide now stands within a whisker of 4%, the highest since 2007, Bloomberg's Global Aggregate Treasuries index shows. It's another reminder of the end of the low-yield era as markets contend with the inflationary impact of the war in Iran, a robust US economy and a torrent of bond sales from governments and tech companies.
"It's rare you get a move like this in bonds," said Dave Aspell, co-chief investment officer at Mount Lucas Management LP, who is short 10-year bonds in the UK, Germany, Canada, Japan and the US. "The Fed has hiked again, inflation is clearly not at target. The economy is doing okay and there's a large amount of government spending."
Strategists at JPMorgan Chase & Co. and KKR & Co. see scope for US yields to climb further as energy-driven inflation, heavy government borrowing and the risk of additional central-bank tightening continue to percolate.
What Bloomberg Strategists Say ...
"Investors aren't rejecting Treasuries because inflation credibility is collapsing, but because the real policy and term-premium outlook still demands a larger concession."
— Alyce Andres, Markets Live strategist
A $44 billion seven-year note auction on Thursday, meanwhile, was awarded at 5.085% — the highest on record since the tenor was reintroduced in 2009 — luring demand that fell short of expectations.
Rising volatility is adding to the gloom, making investors more hesitant to step in even as higher yields make bonds more attractive. The ICE BofA MOVE Index, which measures US bond market swings, climbed Wednesday to the highest level since March.
"Most fixed income will like higher yields, but want them to be stable there," said Hans Mikkelsen, a strategist at TD Securities. Investors are "afraid of catching a falling knife," he said.
--With assistance from Cameron Fozi, James Hirai, Alex Nicholson and Victor Swezey.
(Adds buyback results from second paragraph.)
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