US 30-year bond yield tops 5 per cent for first time since 2007

The US Treasury sold $25bn in 30-year bonds on Wednesday at an auction yield of 5.046 per cent, the first time the long-bond sale has priced above 5 per cent since 2007.

The auction came one day after the Senate confirmed Kevin Warsh as the next Federal Reserve chair and as new data showed inflation accelerating to multi-year highs on both the consumer and producer sides.

Bidding was lighter than the recent average. The bid-to-cover ratio, a gauge of interest from investors and dealers, came in at 2.30, compared with a 10-auction average of 2.40. The 30-year Treasury traded at a market yield of 5.02 per cent following the sale, according to Tradeweb data.

Primary dealers were left holding 14.2 per cent of the auction, above the 12-month average of 11.8 per cent, pointing to thinner end-investor appetite for the maturity. Indirect bidders, a category that includes foreign central banks, took 62.1 per cent, down from 67.3 per cent at the previous 30-year auction in April.

The April consumer price index rose 3.8 per cent from a year earlier, the highest reading since 2023 and above the 3.6 per cent forecast in a Bloomberg survey of economists. Core CPI, which strips out food and energy, climbed 3.5 per cent. Headline CPI rose 0.4 per cent month on month.

On the producer side, prices surged 6.0 per cent year-on-year in April, the fastest pace since December 2022. Energy input costs have climbed sharply since the conflict in Iran broadened in March, feeding through to refined fuels, transport and industrial inputs. Brent crude has risen 22 per cent since the start of February, settling at $94.30 a barrel on Wednesday.

The Senate confirmed Warsh on 13 May in a 57-41 vote. He served as a Fed governor from 2006 to 2011 and was an economic adviser to President Donald Trump during the first administration. He takes the chair at a moment when the central bank is caught between slowing growth and rising prices, with no easy path through.

Warsh has previously argued that the Fed should tolerate moderate inflation rather than risk a recession with aggressive tightening. At his confirmation hearing, however, senators from both parties pressed him on whether he would support further rate rises if price data continued to worsen.

Inside the Fed

Susan Collins, president of the Federal Reserve Bank of Boston, said rate rises would come onto the table if price pressures continued to broaden. “If inflationary pressures continue to expand, rate hikes will be necessary,” Collins said.

Neel Kashkari, who heads the Minneapolis Fed, put it more directly. “We must not forget that curbing inflation is the Fed’s mandate,” Kashkari said, speaking at the same event.

The shift in tone is stark. As recently as March, futures markets were pricing two quarter-point rate cuts before the end of 2026.

The market view

Steven Zeng, a rates strategist at Deutsche Bank, said the 5 per cent threshold was likely to draw buyers back into long-dated Treasuries. “Investor demand is expected to emerge once US Treasury yields reach 5 per cent,” Zeng said.

The 30-year Treasury yield last crossed 5 per cent on a sustained basis during the 2006-07 tightening cycle, when the Fed held its benchmark rate above 5 per cent for more than a year. The federal funds rate now sits in a range of 4.50 to 4.75 per cent.

Futures markets now price in a roughly 70 per cent probability of a quarter-point rate increase by the July meeting, according to CME FedWatch data. A month ago that figure stood below 20 per cent.

Long-dated US debt sold off hard enough on Wednesday to drag down government bonds across the Atlantic. The 10-year gilt yield rose 11 basis points to 4.89 per cent and the German 10-year Bund yield climbed 9 basis points to 3.14 per cent.

What happens next

The Treasury will auction $22bn in 10-year notes on Thursday. The sale will test whether the weak demand in Wednesday’s 30-year auction extends to shorter maturities. The benchmark 10-year yield settled at 4.72 per cent on Wednesday, up 14 basis points on the week.

Mortgage rates have tracked the 10-year Treasury higher. The average 30-year fixed-rate mortgage reached 7.42 per cent in the week to 9 May, according to Freddie Mac, the highest since November 2025.

The FOMC next meets on 17-18 June. Warsh will chair his first session with inflation running above target on every measure and bond markets pricing a rate path that few on the committee would have predicted two months ago.

The Congressional Budget Office estimated in February that each percentage-point increase in the average Treasury yield adds roughly $300bn to the federal deficit over a decade. The 30-year auction result, if sustained, would push the government’s long-term borrowing costs to levels not seen since before the global financial crisis.