Safe-Haven Treasuries Falter as US 30-Year Yield Hits 5.327%, Highest in 19 Years

Rising US fiscal deficits, the AI capital race and Fed uncertainty drive the move

Experts advise managing risk by focusing on short-term bonds

Oil rose above $90 a barrel on fears of a broader conflict as US-Iran talks remained deadlocked, while the yield on the 30-year US Treasury climbed on Aug. 18 to its highest level since 2007, rattling markets.

The 30-year Treasury yield rose as high as 5.327%, its highest level in 19 years. The 10-year Treasury yield also gained 1.7 basis points to 4.739%.

Concerns over worsening US public finances and increased Treasury issuance weighed on the bond market. Investors also scaled back expectations for further interest-rate increases after weaker-than-expected US employment data and softer July consumer price index and producer price index readings.

The selloff in long-dated bonds spread to Japan and Europe. The US 10-year Treasury yield, which had also risen the previous day, reached its highest level in 30 years.

Germany’s 10-year bond yield hit its highest level since May 2011 on Aug. 17, while France’s 10-year bond yield climbed to a 17-year high.

The biggest concern is the continued rise in the US fiscal deficit. As of July in fiscal 2026, the US deficit had already exceeded the previous year’s full-year shortfall of $1.775 trillion. Higher military spending tied to a prolonged Middle East war and rising interest costs are accelerating the deterioration.

Fitch projects the US fiscal deficit will reach 7.4% of gross domestic product in 2026 and 2027. Expectations that the Treasury will need to increase issuance to finance those large deficits are pushing up long-term yields.

Heavy bond financing by large US technology companies, including hyperscalers raising money for AI investments such as data-center construction, is also adding pressure to the Treasury market. Their corporate bonds offer higher yields than Treasuries, drawing investor demand away from government debt and contributing to higher Treasury yields. Funding raised by big tech this year for AI investment totals $269 billion, more than double last year’s amount.

Vasu Menon, managing director for investment strategy at OCBC, cited capital competition from hyperscalers, rising US fiscal deficits and a less transparent Fed policy stance since Kevin Warsh as the main drivers.

During Jerome Powell’s era, the Fed’s relatively transparent communication gave markets greater visibility on the direction of interest rates. Since Warsh, the shift to a less transparent policy stance has become another factor prompting investors to sell Treasuries, Menon said.

He said long-term US Treasury yields would remain a key risk factor for investors and advised them to manage risk by focusing on short-term bonds where possible.

Investors are also pointing to the surge in borrowing by hyperscale companies as a major reason yields are rising. With more bonds flooding the market, issuers must offer higher yields to attract buyers.

Investors are particularly worried about inflation risks as the Strait of Hormuz is effectively closed and the standoff between the US and Iran drags on.

Thierry Wizman, global foreign-exchange and rates strategist at Macquarie Group, said the best-case scenario in the short and medium term remains one in which oil shipments continue to be blocked as both sides press their claims over the strait.

Two recent Treasury auctions also drew attention for their elevated yields. The 10-year Treasury auction cleared at 4.683%, the highest in 19 years. The 30-year Treasury auction cleared at 5.216%, the highest in 25 years.

Anthony Saglimbene, chief market strategist at Ameriprise Financial, said investors have spent the past 15 years trading in a market where stable or declining rates supported a sustained rise in stocks.

Kim Jung-a, contributing reporter