The pressure to sell long-term U.S. bonds intensifies! Government debt approaches $40 trillion, and the 30-year yield nears this century's high.

Recent U.S. Treasury yields have continued to rise, particularly seeing significant selling pressure on long-term bonds. As the U.S. government debt approaches $40 trillion, the further increase in interest rates is driving up financing costs for the federal government and intensifying market concerns over fiscal sustainability. This round of rising Treasury yields began in June, with long-term bonds showing particularly weak performance. The yield on the 30-year Treasury bond has risen by more than 40 basis points from its low at the end of June and is now near its highest level since the early 2000s. Yields on Treasury bonds of other maturities have also broadly increased. Fixed income strategists believe that this increase is not driven by a single factor, but rather the result of multiple influences including an expanding U.S. fiscal deficit, persistent inflation above the Federal Reserve's 2% target, a surge in corporate bond issuance, and an increase in term premiums. Anshul Pradhan, head of U.S. rates research at Barclays Capital, pointed out that these pressures are not new, and that the rise in long-term yields has been gradual. What is particularly noteworthy is that these factors are now strong enough to overshadow some weak economic data. He noted that three independent economic data points this month should have led to a decline in yields, yet long-term Treasury yields continued to rise. Recent U.S. inflation data has actually shown some improvement. July's consumer and producer prices changed little overall, with the core inflation rate, excluding food and energy, at 2.5%, returning to levels seen before the outbreak of the Iran War in late February this year. However, the movement in the Treasury bond market indicates that investors currently have concerns that extend beyond inflation. The fiscal situation in the U.S. is becoming one of the main pressures on long-term bonds. The U.S. fiscal deficit in July reached $432.3 billion, the largest single-month deficit since March 2021, and could push the total deficit for the fiscal year ending September 30 to around $2 trillion. Meanwhile, the total U.S. government debt has nearly approached $40 trillion, with publicly held federal debt about to reach 100% of the U.S. gross domestic product (GDP). High interest rates have further increased the government's debt repayment burden. As of July, the debt financing cost for the fiscal year has accumulated to $1.12 trillion, expected to reach $1.37 trillion by the end of the year, an increase of about $84 billion from 2025. In terms of net expenditures, debt financing has now become one of the major expenses for the U.S. government, second only to Social Security and Medicare. Ed Yardeni, founder of Yardeni Associates, believes that the Treasury bond market is gradually nearing a tipping point where "bond vigilantes" begin to express dissatisfaction with fiscal conditions. This concept refers to bond investors who sell government bonds due to concerns over fiscal discipline and inflation, thereby forcing policymakers to make adjustments by pushing yields higher. Yardeni noted that investors are concerned that the Federal Reserve is not being aggressive enough in controlling inflation and are also worried about rising oil prices. However, he also believes that if the U.S. economy itself is not strong enough, it will be challenging for Treasury yields to maintain their current levels, suggesting that the currently high yields may also reflect the market's acknowledgment of the resilience of the U.S. economy. In addition to the government's substantial financing needs, a surge in corporate bond issuances driven by the AI investment boom is also competing for investor funds with U.S. Treasuries. According to data from the Securities Industry and Financial Markets Association, U.S. corporations have issued nearly $1.7 trillion in bonds this year, a 27% increase from the previous year, even surpassing the total issuance for 2025. As tech companies and others invest heavily in building AI data centers and related infrastructure, the demand for financing in the capital markets is rapidly increasing. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, pointed out that in addition to the growth of government debt, record corporate bond issuance has further increased the supply of long-term bonds in the U.S. fixed income market, impacting overall yields, the yield curve, and term premiums. He believes that unless there is a significant reduction in long-term bond supply, a major tightening of financial conditions, or a clear deterioration in the U.S. economic outlook, long-term Treasury yields are likely to continue trending upward in the short term. Uncertainty regarding Federal Reserve policy has also become another pressure facing the bond market. Federal Reserve Chairman Waller has maintained caution regarding the future path of rates, reducing forward guidance to the market. With the Fed keeping the federal funds rate between 3.50% and 3.75% throughout this year, decreasing transparency in central bank communications has made the already pressured bond market even more cautious. Currently, the market perceives a low probability of a Fed rate hike in September and expects a higher probability of another increase until December. This has prompted some investors to question whether the Fed's commitment to returning inflation to the 2% target is as strong as publicly stated. However, Yardeni believes that the Treasury bond market's decreasing reliance on Fed policy is not entirely a bad thing. As yields rise to more attractive levels, new buyers may eventually re-enter the market. He argues that current rates are increasingly determined by market supply and demand and risk pricing, signaling a return to a more market-oriented operating mechanism for the Treasury bond market.