As concerns about inflation and interest rate hikes continued, the sell-off of US bonds intensified, and the 30-year yield once broke through 5.6% and hit a 24-year high

The Zhitong Finance App learned that US long-term treasury yields continued to rise on Tuesday, continuing the recent sharp rise. Under the influence of multiple factors such as inflationary pressure, the Federal Reserve's monetary policy, and the increase in the supply of US fiscal deficits and treasury bonds, long-term US bonds experienced continuous sell-off. The yield on 30-year US bonds once rose above 5.6% intraday, hitting the highest level since June 2002.

As of press release, the 30-year US Treasury yield had risen more than 2 basis points to 5.585%, and at one point it rose slightly above 5.6% in the intraday period. The last time it reached a similar level dates back to June 2002, when the 30-year US Treasury yield once reached 5.644%.

As an important benchmark for financing costs such as US mortgages and auto loans, the 10-year US Treasury yield rose by about 1 basis point to 5.253%. In contrast, the 2-year US Treasury yield, which is more sensitive to the Federal Reserve's short-term interest rate policy, fell by more than 3 basis points to 4.891%, indicating a steeper yield curve for the day.

Inflation, fiscal deficit, and US debt supply are putting pressure on long-term debt maturity premiums to rise

Joanne Bianco, senior investment strategist at BondBloxx Investment Management, said that investors are still paying close attention to inflation and are increasingly concerned about the US fiscal deficit and the large supply of treasury bonds. All of these factors have prompted the market to believe that holding long-term US bonds requires a higher maturity premium.

Recently, long-term US bond yields have rapidly climbed to multi-year highs. The first reason behind this is the continued pressure on the inflation outlook. The seven-month conflict in the Middle East still supports energy prices, and high energy costs have further exacerbated market concerns about rising prices. At the same time, the increase in US government debt has also made investors pay more attention to the scale of future treasury bond issuance and long-term fiscal prospects.

Long-term treasury bonds are generally more sensitive to inflation expectations and fiscal conditions. When investors worry that future inflation will remain high for a long time, or that the supply of US bonds will increase due to the widening fiscal deficit, they often demand higher yields as compensation for holding long-term bonds.

The US and Iran seek to reach out through mediation, and the situation in the Middle East still affects the US debt market

The geopolitical situation has also become an important variable affecting US debt. According to reports, the US and Iran are holding separate talks with the mediators to find a solution to the ongoing Middle East conflict. Related news has made the market continue to pay attention to whether the situation may ease.

However, until energy prices fall significantly, the market is still worried that high oil prices will continue to drive up US inflation and force the Federal Reserve to maintain a tighter monetary policy.

This also puts long-term US debt under double pressure. On the one hand, rising energy prices may make inflation more stubborn; on the other hand, if the Federal Reserve needs to raise interest rates further, investors' expectations for the future interest rate path will also move upward.

Expectations of another rate hike in October will heat up, and the probability of market betting exceeds 72%

As concerns about inflation continue to heat up, traders are further increasing their bets on another Fed rate hike. According to the CME FedWatch tool, the market currently anticipates that the probability that the Federal Reserve will raise interest rates again at the next policy meeting in October is over 72%.

Earlier this month, the Federal Reserve Open Market Committee (FOMC) raised the benchmark interest rate by 25 basis points with a unanimous vote of 12 to 0. Today, energy prices remain high and inflationary pressure continues, making investors more betting that the Federal Reserve may continue to tighten its policies.

It is worth noting that on Tuesday, there was a clear divergence in the trend of the US bond market with different maturities. 2-year yields have declined, while 10-year and 30-year yields have continued to rise, indicating that recent market pressure is more concentrated in the long term.