Investors snagged 5% yields on 30-year Treasuries for the first time since 2007, as surging energy prices push inflation — and expectations for more of it — higher.
A $25 billion auction of new 30-year bonds on Wednesday was awarded at 5.046% based on the yields that bidders said they were willing to accept. The result, which was slightly above the level seen in trading immediately before the auction, showcased middling demand as US government yields reach their highest levels in nearly a year.
Sales of three- and 10-year Treasuries earlier in the week also drew less demand than expected.
Auction bidders are demanding higher fixed rates as compensation for the risk that inflation — stoked by rising energy prices since the US attacked Iran in late February, choking off Middle-East oil supply — will accelerate further. The oil shock has driven broad inflation gauges including the US consumer and producer price indexes higher, and lifted market-based inflation expectations.
“I would expect at 5% yields to see investor demand emerge,” said Steven Zeng, an interest-rate strategist at Deutsche Bank. “It’s typically where 30-year Treasuries become more attractive for pension funds and other liability-driven investors.”
However that’s contingent on inflation not compelling the Federal Reserve to raise interest rates, as futures markets have begun to anticipate, Zeng said.
“Our base case is that the Fed is done cutting but is not going to hike rates either because long-term inflation expectations are still well-anchored,” he said. “But if high energy prices cause un-anchoring of expectations, the market would have to rethink the Fed path, and that would be a scenario where yields could move substantially higher.”
The last 30-year Treasury to carry a 5% interest rate was sold in 2007, on the brink of the global financial crisis and US economic recession. Since then, no 30-year Treasury has carried an interest rate higher than 4.75%. The lowest 30-year fixed rate in the past 20 years was 1.25%, set by an auction in May 2020 following the onset of the pandemic. That bond trades at less than 50 cents on the dollar to entice buyers.
The fixed interest rates on Treasury notes and bonds are determined by auction results, and a result between 5% and 5.124% dictates a coupon rate of 5%.
It’s not the only Treasury security to carry a 5% interest rate during the past two decades. Twenty-year bonds, reintroduced by the US government in 2020, have traded at higher yields than 30-year bonds for much of the time since then, reflecting weaker investor demand. As a result, a 20-year bond sold in May 2025 carried a 5% interest rate.
The US government’s longest-maturity securities have traded at yields higher than 5% at various points in the past five years, initially breaching the level in October 2023 after the Federal Reserve raised interest rates by more than five percentage points to throttle the last inflation outbreak. A ramp-up in Treasury auction sizes during that period contributed.
Written by: Elizabeth Stanton @Bloomberg
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