US 30-Year Treasury Yield Hits Highest Level Since 2007 as Growth Cools

The 30-year US Treasury yield reached its highest level in nearly 20 years on Monday, August 17. The last time lenders demanded this much to hold American debt for three decades, the iPhone did not exist, and Lehman Brothers was still a Wall Street institution.

Why Did US Treasury Yields Rise Despite Falling Retail Sales?

The move in long-end yields came days after two data points pointed in the opposite direction:

• Retail sales fell a surprise 0.6% for July
• Producer prices came in flat for the month

Weak demand and no pipeline inflation would ordinarily pull yields lower. The long end moved higher instead, signalling that the bond market is pricing something beyond near-term growth conditions.

What Does the 30-Year Treasury Yield Signal About the US Economy?

The Federal Reserve sets rates at the short end of the curve. It has held the policy rate at 3.50% to 3.75% for five straight meetings. The 30-year end reflects market pricing of inflation expectations, fiscal deficits, and long-term risk over a three-decade horizon.

When that number reaches a two-decade high, the market’s assessment of those long-run variables is not favourable.

Six Geopolitical and Fiscal Factors Pushing US Bond Yields Higher

Several factors are weighing on the US fiscal and geopolitical picture simultaneously:

• Crude oil sits near $83 per barrel
• The US Strategic Petroleum Reserve just printed its lowest level in 43 years
• The Strait of Hormuz remains a pressure point despite US Navy presence in the region
• No resolution is in sight on the Iran situation, with no deal rush signalled from the White House
• The administration has signalled interest in closer ties with North Korea
• Attention on Ukraine has visibly reduced from Washington

What the July FOMC Minutes Could Reveal

The July Federal Open Market Committee minutes are due on Wednesday, August 19. The July 29 meeting ended in a 9-3 vote to hold rates. Three members, Beth Hammack, Neel Kashkari, and Lorie Logan, voted for a 25-basis-point increase.

Those three dissented before retail sales fell and before crude turned back up. Nothing since the meeting has weakened their case for a hike.

Final Outlook

Source: Yahoo Finance