The US Treasury held a $25 billion auction for 30-year bonds on Thursday, with the highest accepted yield reaching 5.22%, the highest level since August 2001. At that time, the yield had hit 5.52% before 30-year bond auctions were suspended for nearly five years. The rapidly climbing yield in this auction exceeded the 5.06% from the previous sale in July, and was notably higher than the 4.91% recorded before the start of Trump's second term in January 2025. The day before, a $42 billion auction of 10-year bonds also saw its yield hit a new high not seen since 2007.
Gennadiy Goldberg, Head of US Interest Rate Strategy at TD Securities, commented: "Overall, this is a problem for the Treasury. They have to finance the government at a more expensive cost."
The backdrop for the significant rise in yields is the swelling of US public debt to nearly $40 trillion, with the debt-to-GDP ratio approaching historic highs. The large-scale tax cut bill pushed by the Trump administration (the so-called "Big and Beautiful Act") has pushed nominal debt growth to its fastest pace since the pandemic. Debt held by the public surpassed GDP in the first quarter of 2026. The Congressional Budget Office projects that the national debt will exceed the post-World War II peak of 106% by the end of this decade, and rise to 120% by 2036. Currently, government spending on debt servicing has already surpassed defense spending.
Meanwhile, the Iran war has driven up energy prices, and combined with tariffs and massive spending on AI infrastructure, inflation has remained persistently high. The annual inflation rate rose to a three-year high of 4.2% in May, before falling back to 3.4% in July, still significantly above the Federal Reserve's target.
Despite investor concerns about inflation and debt levels, the higher yields did support demand. The bid-to-cover ratio for Thursday's 30-year auction was 2.39, above the average of the previous six auctions. Goldberg noted that this indicates "there is still demand for long-term fixed income, but you have to give them the price."
The Treasury stated earlier this month that it would keep the auction size of longer-term securities stable over the coming quarters. Analysts believe this will help limit further upward pressure on yields. The increased financing needs are expected to be met more through short-term Treasury bills, but this also makes the overall debt more sensitive to interest rate fluctuations. Currently, US long-term financing costs have risen significantly, and the dual pressures of debt and inflation continue to test market confidence.
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