The US 30-year Treasury yield climbed toward 5.27% on Tuesday, 1 September, extending its worst sustained run since 2006 as renewed US-Iran fighting this week lifted oil prices and intensified concerns about inflation and interest rates.

The yield reached 5.34% in mid-August, its highest since 2007 and only 10 basis points below the highest level in 22 years. It touched about 5.27% in Asian trading on Tuesday, while the 10-year yield rose to 4.79%, its highest since January 2025. One basis point is one-hundredth of a percentage point.

Brent crude climbed above $92 a barrel after the US and Iran exchanged fresh strikes, raising the risk that higher energy costs will keep inflation elevated and force the Federal Reserve to raise interest rates.

The selloff spread across global bond markets. Japan’s 10-year government bond yield reached 3% for the first time since 1996, while the UK’s 30-year yield climbed to its highest level since 1998.

Thirty-year Treasury yields have closed above 5% on 55 trading days since January, the most in any year since 2006,  Moneycontrol reported, citing Bloomberg data.

Federal Reserve data put the 30-year constant-maturity yield at 5.22% on Friday, 28 August, up from 4.92% a year earlier. Bond yields rise when prices fall.

The pressure reflects several forces converging on the longest end of the Treasury market, including persistent inflation, large federal deficits, weakening demand from traditional buyers and growing competition from corporate borrowers financing artificial-intelligence infrastructure.

Deficits keep debt supply high

The US government recorded a cumulative deficit of $1.8 trillion during the first 10 months of fiscal 2026, $169 billion more than during the corresponding period a year earlier.

The Congressional Budget Office (CBO) now estimates that the full-year deficit will reach $2.1 trillion, $200 billion more than the $1.9 trillion it projected in February. The earlier estimate was equivalent to 5.8% of gross domestic product (GDP), already well above the 3.8% average recorded over the previous 50 years.

The deterioration reflects spending rising faster than government revenue. Federal receipts increased 3% during the first 10 months of the fiscal year, while outlays rose 5%, according to the CBO.

Financing that gap requires the Treasury to continue issuing large volumes of bills, notes and bonds. The department expects to borrow $739 billion in privately held net marketable debt during the July to September quarter, $68 billion more than it estimated in May. It expects to borrow another $628 billion from October through December.

About $31.5 trillion of Treasury securities were outstanding at the end of July, 8.6% more than a year ago, according to SIFMA.

Large and persistent deficits can push long-term yields higher because investors demand greater compensation to absorb additional debt and protect themselves against future inflation.

AI borrowing adds competition

Treasuries must also compete with a surge in corporate bonds, much of it linked to the construction of data centers, power systems and other AI infrastructure.

Bloomberg estimates that US companies could sell about $215 billion of debt in September after record issuance in August. Technology companies that historically financed investment from their cash reserves are increasingly borrowing to fund projects whose costs run into tens of billions of dollars.

Corporate bonds generally offer higher yields than Treasuries because investors take on additional credit risk. When companies issue debt in large volumes, government yields may also have to rise to keep Treasury securities attractive.

The effect is especially important for long-term debt because both the government and AI infrastructure developers are seeking capital for investments or obligations that extend across decades.

The Treasury Department moved in August to increase its purchases of older 10- to 30-year securities after long-term yields reached their highest levels in nearly two decades.

Beginning on 9 September, the size of each longer-dated liquidity-support buyback will increase from a maximum of $2 billion to at least $4 billion, the department said on 19 August.

Buybacks remove older, less frequently traded bonds and replace them with newer securities. They can improve market liquidity and support demand, but they do not reduce the government’s underlying borrowing requirement because the repurchased bonds are financed through new issuance.

Their scale is also small compared with the size of the Treasury market. The initial announcement briefly pulled long-term yields lower, but the relief did not last. Renewed inflation concerns and heavy debt supply subsequently pushed yields back toward their August highs.

Fed decision becomes the next test

Attention has now shifted to the Federal Reserve’s policy meeting on 15 and 16 September. Futures markets on Tuesday assigned a probability of about 66% to a quarter-point interest-rate increase, according to the CME FedWatch Tool. The current federal funds target range is 3.5% to 3.75%.

Expectations changed after Fed Chair Kevin Warsh used his Jackson Hole speech to reaffirm the central bank’s commitment to its 2% inflation target. “Inflation remained too high,” Warsh said in his 28 August address, while leaving the September decision dependent on incoming economic data.

The Fed’s preferred inflation measure rose 3.7% from a year earlier in July, unchanged from June and above economists’ expectations. Core inflation, which excludes food and energy, stood at 3.3%, according to the Bureau of Economic Analysis.

The August employment report is due on Friday, 4 September, followed by consumer inflation data on Friday, 11 September. Both could alter market expectations before the Fed meeting.

Long-term bonds face risks whichever course the Fed chooses. If policymakers leave rates unchanged while inflation remains high, investors may demand a larger premium to hold 30-year debt. A rate increase could initially lift yields but eventually support long bonds if investors believe tighter policy will contain inflation.

Demand for 30-year securities is also narrower than for shorter Treasuries. Insurers and pension funds buy them to match liabilities extending over several decades, but many bond managers limit their exposure because long-dated securities are especially sensitive to changes in interest rates and inflation expectations.

Higher yields may eventually attract buyers. For now, however, Treasury buybacks have failed to reverse the pressures created by persistent inflation, widening fiscal deficits, renewed oil-price risks and the competing borrowing demands of the AI investment boom.