Global Government Bond Sell-Off Pushes U.S. 30-Year Treasury Yield Back to 5% – What’s Driving the Move?

A widespread sell-off in sovereign debt markets has driven the yield on the 30-year U.S. Treasury back near the psychologically significant 5% mark. On Tuesday, government bond markets from the United States to the United Kingdom, Italy, and France all felt the pressure, with yields climbing sharply across the board. In the U.S., the 30-year yield jumped 5.3 basis points to 4.97%, while the 10-year yield rose 4.9 basis points to 4.276%. This bond-market pessimism quickly bled into equities, dragging the S&P 500 down 0.7%—its largest single-day drop since August 1.

Several key factors are intersecting to drive this turmoil. A flood of corporate bond issuance is offering investors high-yield alternatives, while concerns over deteriorating fiscal positions in major economies are weighing heavily on government debt. Seasonal liquidity constraints in September are also amplifying the sell-off, a pattern that historically punishes long-dated bonds.

September traditionally ranks as the second-busiest month for U.S. investment-grade corporate debt issuance—trailing only March—and this year’s pipeline appears even larger. Wall Street forecasts suggest issuers may tap markets for between $150 billion and $180 billion of new investment-grade paper this month, potentially surpassing last September’s $172.55 billion. Pimco portfolio manager Mike Cudzil emphasizes that this deluge of supply is part of the reason yields have climbed, noting that investors must free up cash to absorb roughly $60 billion of new debt hitting the market this week alone. Across the Atlantic, Europe has seen similarly active corporate issuance, according to Principal Global Investors’ Josh Rank.

Beyond supply concerns, deeper questions about sovereign creditworthiness are fueling the sell-off. Britain’s 30-year gilt yield reached its highest level since 1998, and French long-dated yields rose by six basis points. Heavy post-pandemic fiscal spending has left governments reliant on ever-larger bond offerings to fund deficits. “The bond market is signaling widespread unease with the current fiscal path,” observes Charles Schwab’s chief fixed income strategist Kathy Jones, noting that investors now demand clear proof of fiscal discipline.

Republications of seasonal and technical factors compound these fundamental drivers. Over the past decade, bonds maturing in more than ten years have posted a median September decline of 2%, making it the weakest month of the year for long-duration holdings. Columbia Threadneedle’s rate strategist Ed Al-Hussainy points out that this historical trend underscores traders’ reluctance to carry duration risk into autumn.

Liquidity pressures are set to intensify mid-month. Barclays research, cited by Zhuifeng Trading Desk, forecasts that on September 15 alone, U.S. Treasury cash account replenishments, quarterly tax payments, and coupon settlements could withdraw nearly $200 billion of reserves from the banking system. However, Barclays remains confident that the Federal Reserve’s standing repo facility will prevent a systemic funding crisis.

All eyes now turn to Friday’s U.S. nonfarm payroll report, the last major labor market release before the Federal Reserve’s September policy meeting. With traders pricing in roughly a 92% chance of a 25-basis-point rate cut, a softer print could cement easing expectations and give the battered bond market some respite. Conversely, unexpectedly strong employment figures would likely reinforce concerns about “higher for longer” interest rates and prolong the sell-off.