2007年以来未见，美债市场正在拉响警报

Original Author: Zhao Ying

Original Source: Wall Street CN

The U.S. Treasury market is facing its most severe stress test in nearly two decades. Amid the triple shocks of escalating tensions in the Middle East, oil prices breaking through the $100 mark, and the resurgence of inflation expectations, U.S. Treasury yields have surged across the board to multi-year highs. The 30-year yield has particularly recorded its longest continuous period of elevated levels since 2007, causing a sharp shift in market expectations regarding the Federal Reserve's policy path.

On Thursday, the 10-year U.S. Treasury yield rose 4 basis points to 4.71%, hitting its highest level since January 2025. The 30-year yield climbed to 5.19%, with the period it has remained above 5% surpassing any stretch since 2007. Meanwhile, Brent crude oil futures surged 7% in a single day, breaking through $100 per barrel, with the market focusing on the escalation of the Middle East conflict and reports of an attack on a tanker near the Saudi coast.

The rising yields have quickly transmitted to U.S. entity financing costs. The 10-year Treasury is a key pricing benchmark for mortgages and corporate loans. The average rate on the U.S. 30-year fixed mortgage has risen to 6.58% this week, a near one-year high. U.S. stocks have also come under pressure. On Thursday, the Dow Jones Industrial Average fell nearly 1%, the S&P 500 dropped 1.2%, and the Nasdaq Composite declined 2.15%.

Goldman Sachs' trading desk previously identified the 10-year Treasury yield at 4.7%, WTI crude oil at $90, the VIX at 20 points, and the S&P 500's 50-day moving average as key psychological thresholds. Currently, the 10-year yield has touched 4.7%. Charlie McElligott, an analyst at Nomura Securities, believes that the rate market is preemptively trading on what it perceives other investors' policy expectations to be, expressing discontent that a "hawkish hold" may no longer be sufficient.

30-Year Yield Stands Firm Above 5%, Longest Streak Since 2007

The core of the current volatility in the Treasury market is the increasing stickiness of long-end yields above the 5% level.

According to Dow Jones Market Data, the 30-year Treasury yield had closed above 5% for 11 consecutive trading days through Tuesday, and on Wednesday, it further extended the longest such streak since 2007. On Thursday, the 30-year yield continued to rise to 5.19%.

This range itself is not an automatic 'red line' triggering a market crisis. Market participants generally view 5% as a notable psychological round number that attracts attention, but it does not force the U.S. to halt borrowing in the open market immediately. Bond prices move inversely to yields. Persistently high yields mean investors are demanding higher returns to compensate for risks such as inflation eroding returns, expanding fiscal financing needs, and increased supply of long-term bonds.

Dustin Reid, Chief Fixed Income Strategist at Mackenzie Investments, pointed out that for long-duration bonds, the "biggest enemy" is inflation. "If inflation is going to be higher for longer, investors need to be compensated accordingly."

Notably, unlike in 2023 and earlier this year, once the 30-year yield touched 5% in this cycle, it has found it difficult to fall back quickly. Alexander Payne, Head of Mortgages, Agencies, and Volatility at Vanguard, stated that there is no single 'trigger' for this sell-off, but the market also shows no signs of a rapid 'buy-the-dip' mentality. He believes that given the massive U.S. fiscal deficit and the historic spending expectations for AI infrastructure, "there will be plenty of opportunities to buy long-duration debt at higher yields."

Oil Price Shock Reignites Inflation Expectations, Rate Hike Bets Intensify

Brent crude breaking through $100 per barrel is the direct catalyst for the current bond market turmoil.

The conflict between the U.S. and Iran, which erupted in late February this year, has continuously pressured energy markets. Oil prices briefly retreated in June following a ceasefire agreement, and inflation data also cooled, but the fragile Middle East peace quickly unraveled, leading to a significant rebound in Brent crude from its lows. Hamad Hussain, Climate and Commodities Economist at Capital Economics, stated, "Unless there are clear signs of de-escalation in conflicts across the region, the upside risks for oil prices remain tilted to the upside."

Prior to the oil price surge, institutions like Goldman Sachs and UBS expected the Fed to keep rates unchanged this year. However, the market is now beginning to reprice for a more hawkish policy path. According to CME FedWatch data, traders' probability of the Fed hiking rates at its next policy meeting has risen to 36%. Polymarket data shows market bets on a rate hike in 2026 have climbed to 71%.

Charlie McElligott, Equity Derivatives Analyst at Nomura, warned in a Thursday report that the rates market is essentially trying to "pre-empt the pre-empters," and this could be a "mini-tantrum" signaling that a "hawkish hold isn't cutting it anymore." He further noted that the oil shock implies higher interest rate volatility, forcing central banks to reprice hawkishness, ultimately leading to a tightening of cross-asset volatility.

Goldman Sachs' trading desk flagged key psychological thresholds for the market to watch: the S&P 500's 50-day moving average (7462 points), the 10-year yield at 4.7% (last seen in January 2025), WTI crude at $90, and the VIX volatility index at 20 points. McElligott also warned that the VIX's seasonal patterns are about to "take off" in August, a period typically characterized by thin liquidity and low risk tolerance.

Fiscal Financing and AI Bond Supply Intensify Pressure on Long-End Bonds

Oil prices are not the sole reason for higher Treasury yields. Fiscal deficits, the supply-demand dynamics of Treasury securities, and increased corporate long-term bond issuance are collectively altering the supply-demand balance for long-end bonds.

The deteriorating U.S. fiscal situation adds another layer of concern to the bond market. Defense Secretary Pete Hegseth estimated in congressional testimony on Tuesday that the U.S.-Iran war has cost $37.5 billion so far, and the Trump administration is requesting an additional $67 billion in supplemental funding to support the escalating conflict. Meanwhile, the U.S. national debt has reached $39.6 trillion, nearly five times the $8.35 trillion figure in 2007, and the debt-to-GDP ratio surpassed 100% this spring.

At the same time, the participation of foreign buyers in the U.S. Treasury market has declined compared to previous decades. Brij Khurana, Fixed Income Portfolio Manager at Wellington Management, noted that the presence of foreign buyers in the U.S. Treasury market has been steadily weakening for decades, even as U.S. debt levels approach $40 trillion and issuance needs rise. He believes a "handoff" from foreign buyers to domestic holders is needed, but domestic investors "may only be willing to step in when the stock market falls."

The bond market also faces structural supply pressure from the corporate sector. According to MarketWatch citing BondCliQ data, the combined outstanding bond face value of six tech giants – Microsoft, Amazon, Google parent Alphabet, Nvidia, Meta, and Oracle – is close to $500 billion in 2026. The AI capital expenditure arms race is providing bond investors with ample alternatives to the 30-year Treasury, further diverting demand away from U.S. government debt.

Furthermore, the bond market's trajectory is also intertwined with market speculation regarding the policy stance of the new Fed Chair, Kevin Warsh. Warsh has pledged to drive central bank reforms and establish a special working group to review communication mechanisms, the inflation framework, and balance sheet policies. Tom Tzitzouris, Head of Fixed Income Research at Baird Strategas, stated, "The biggest driver right now is probably the Warsh story, and how he will approach his role as Fed Chair."

Rising Interest Rates Begin to Test Stock Valuations and Housing Finance

The rise in Treasury yields is spreading from the bond market to the U.S. stock and housing markets.

In previous weeks, the stock market reacted relatively mildly to rising oil prices. Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, believed the equity market could show resilience with the 10-year Treasury yield around 4.65% and oil around $87, partly due to low short-term realized volatility and upward revisions to corporate earnings expectations.

However, with oil reaching $100 and the 10-year yield breaking above 4.7%, this equilibrium is starting to strain. Higher yields increase corporate financing costs and compress valuation multiples for high-valuation assets. The weakness in tech stocks on Thursday, which pushed the Nasdaq Composite lower, indicates the market's growing sensitivity to rising interest rates and capital expenditure.

The housing market is also facing direct impacts. The U.S. 30-year fixed mortgage rate has risen to 6.58%, near a one-year high. Higher mortgage rates typically slow refinancing activity and increase monthly payments for homebuyers.

Mackenzie Investments' Reid warned that if the 30-year yield hits 5.25%, the Treasury will start to get uncomfortable. "They don't want the long end of the curve to run away from them, because that's certainly a risk for equities and valuations." JPMorgan Chase CEO Jamie Dimon recently stated publicly that he would not buy long-term U.S. Treasuries at current prices, warning that the deficit issue "will be a problem" and that "bond vigilantes" will make a comeback.