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

Fiscal deficit fears, AI funding race and Fed opacity drive selloff

Experts say investors should manage risk with short-term bonds

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

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

Concerns over worsening U.S. public finances and increased Treasury issuance weighed on the bond market. Investors also scaled back expectations for additional rate hikes after weaker-than-expected U.S. employment data and tame July readings for the consumer price index and producer price index.

The selloff in long-dated bonds spread to Japan and Europe. The U.S. 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 since May 2011 on Aug. 17, while France’s 10-year bond yield rose to a 17-year high.

The biggest concern is the continued expansion of the U.S. fiscal deficit. As of July, the U.S. fiscal 2026 deficit had already surpassed 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 U.S. fiscal deficit at 7.4% of gross domestic product in 2026 and 2027. Expectations that the Treasury will need to increase bond issuance to cover those large deficits are pushing long-term yields higher.

Heavy borrowing by major U.S. technology companies, including hyperscalers raising money for AI spending such as data-center construction, is also adding pressure to the Treasury market. Their corporate bonds offer higher yields than Treasuries, drawing investor demand and competing directly with government debt. Funding raised by big tech this year for AI investment has reached $269 billion, more than double last year’s total.

Vasu Menon, managing director for investment strategy at OCBC, cited capital competition from hyperscalers and the widening U.S. fiscal deficit as key drivers. He also pointed to a less transparent Fed policy stance since Kevin Warsh.

Under Jerome Powell, the Fed’s relatively transparent communication gave markets a clearer sense of the path of interest rates. Since Warsh, that shift toward opacity has become another factor prompting investors to sell Treasuries.

Menon said long-term U.S. Treasury yields will be a key risk factor for investors going forward. He advised focusing on short-term bonds where possible to manage that risk.

Investors also point to the surge in borrowing by hyperscale companies as a major driver of higher yields. With a wave of new bond supply hitting the market, issuers have had to offer higher returns to attract buyers.

They are particularly concerned about inflation risks stemming from the U.S.-Iran standoff, with the Strait of Hormuz effectively closed.

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

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