U.S. Treasuries face massive sell-off as 30-year yield returns above 5%
On Tuesday, the U.S. Treasury market experienced a large-scale sell-off, with the 30-year Treasury yield rising to 5.02%, the highest level since May. This surge in yield was mainly influenced by the latest inflation data, with the June CPI increasing by 0.3% month-on-month and rising to 2.7% year-on-year. The rebound in long-term Treasury yields indicates an increase in borrowing costs, and market expectations for future interest rate hikes by the Federal Reserve are also changing. Most sectors of the U.S. stock market closed lower, with only large technology stocks performing relatively well
According to Zhitong Finance APP, on Tuesday, there was a massive sell-off in the U.S. Treasury market, particularly with long-term bond yields rising sharply, ringing alarm bells for stock market investors. By the close, the yield on the 30-year U.S. Treasury bond rose to nearly 5.02%, the highest level since May 23.
The main driver of this surge in yields was the change in expectations brought about by the latest inflation data. The Consumer Price Index (CPI) for June rose by 0.3% month-on-month, marking the largest single-month increase this year; the year-on-year inflation rate also increased from 2.4% last month to 2.7%, while the core CPI annual rate rose from 2.8% to 2.9%. Data showed that prices for goods sensitive to tariffs, such as furniture, toys, and home appliances, accelerated in their rise, indicating that the transmission of tariffs to inflation has begun to manifest.
The rebound of long-term Treasury yields above 5% often signifies higher borrowing costs, affecting everything from mortgage rates to corporate bond issuance rates. The market generally views the 30-year yield as a "barometer" of macroeconomic and fiscal health. This jump not only reflects concerns in the bond market about rising inflation but also raises expectations for the Federal Reserve to increase interest rates or maintain high rates for a longer period.
Although futures traders for the Fed funds still bet on two potential rate cuts of 25 basis points each before the end of the year, the adjustments in the bond market are changing these expectations. Lauren Henderson, an economist at Stifel Nicolaus in Chicago, noted, "The market now expects the Fed will have to maintain higher rates for a longer time, and the window for rate cuts in 2025 is gradually closing." She believes that if the new round of tariffs takes effect on August 1, it could further exacerbate inflationary pressures.
On Tuesday, not only did the yields on the 30-year and 20-year U.S. Treasury bonds break above 5%, but even the yield on the 3-month Treasury bill rose to 4.345%. Under the pressure of the bond market sell-off, most sectors of the U.S. stock market closed lower: the Dow Jones fell by 0.98%, the S&P 500 index dropped by 0.40%, and the small-cap Russell 2000 plummeted by 1.99%, with only large technology stocks performing relatively well, as the Nasdaq edged up by 0.18%
