The rise in oil prices and fiscal pressures have triggered a sell-off in U.S. long-term bonds, with the 30-year yield reaching a nearly 20-year high.

U.S. Treasury yields generally rose on Monday amid renewed increases in international oil prices, heightening investor concerns about persistently high inflation, expanding U.S. fiscal deficits, and rising government debt supply. Notably, the yield on the 30-year Treasury bond climbed to its highest level since 2007, with significant selling pressure evident on long-term bonds. As of Monday, the yield on the 30-year Treasury bond rose more than 4 basis points to 5.311%, reaching its highest level since June 2007; the yield on the 10-year Treasury bond, a crucial reference for financing costs such as mortgages and auto loans, increased by over 2 basis points to 4.724%; while the 2-year Treasury yield, more sensitive to expectations for the Federal Reserve's short-term policy, rose by more than 1 basis point to 4.182%. Bond prices move in the opposite direction of yields. Rising oil prices were one of the factors pushing yields higher that day. The 60-day peace agreement between the U.S. and Iran expired on Monday, and Iranian officials reportedly ruled out the possibility of extending the agreement. An Iranian senior official also stated that if diplomatic efforts with the U.S. fail, Tehran will adopt a more aggressive stance, raising market concerns over risks related to the Middle East situation and energy supplies. As a result, U.S. WTI crude oil futures rose 2.6% on Monday to settle at $84.50 a barrel; international benchmark Brent crude increased by 2.7% to $90.87 a barrel. Since the outbreak of the Middle East conflict months ago, energy prices have remained elevated, exacerbating market worries about inflationary pressures, although relatively mild inflation data from the U.S. in recent times has somewhat alleviated investor concerns. However, Barclays believes the main factors behind the recent rise in Treasury yields may not be inflation but rather the U.S. fiscal deficit, large corporate debt issuance driven by AI investment trends competing for funds with Treasury bonds, and investors demanding higher term premiums. Anshul Pradhan, head of U.S. interest rate research at Barclays, pointed out that what merits attention is not the pressures themselves but their current strength, which is powerful enough to overshadow the favorable impact of some weak economic data on the bond market. He noted that this month, three independent economic data points should theoretically have prompted yields to decline, yet long-term Treasury yields continue to rise. Last Friday, U.S. retail sales unexpectedly fell by 0.6% month-over-month in July, following a flat reading for the July Producer Price Index (PPI). Both pieces of data indicated a moderation in economic and inflationary pressures. However, Treasury yields did not decline as a result; instead, they continued to climb, further indicating that investor focus on long-term fiscal and bond supply issues is increasing. The U.S. fiscal situation also puts pressure on long-term Treasury bonds. Data released by the U.S. Treasury last week showed that the federal budget deficit in July rose to its highest monthly level in over five years, driven by increased Medicare expenditures and substantial costs associated with national debt interest. The cumulative fiscal deficit for the current fiscal year has also surpassed levels seen during the same period last year. Anthony Saglimbene, chief market strategist at Ameriprise, stated that investors are increasingly assessing U.S. Treasuries from the perspective of long-term fiscal sustainability, with the influence of traditional factors such as inflation, monetary policy, and economic growth on the long end of the yield curve somewhat diminishing. The market will next focus on the minutes from the Federal Open Market Committee (FOMC) meeting held in July, which the Fed will release on Wednesday, to seek further clues about the direction of future interest rate policy. On July 29, the Fed voted 9 to 3 to maintain the federal funds rate target range at 3.5%-3.75% for the fifth consecutive time. At that time, Cleveland Fed President Mester, Minneapolis Fed President Kashkari, and Dallas Fed President Logan voted against the decision, advocating for a 25 basis point rate hike. In the context of recent cooling inflation data but persistently rising long-term Treasury yields, discussions within the Federal Reserve regarding the need for further monetary tightening will remain closely watched by the market.