The fiscal pressures on the US government have increased after it paid the highest borrowing costs to sell long-term bonds in a quarter of a century. An auction of 30-year Treasury bonds showed that investors are demanding a heavy premium to take on long-duration US debt, amid concerns over inflation and the country's rising national debt.
Thursday's sale of $25bn of 30-year bonds incurred a yield, or interest rate, of 5.216%, the most since 2001. Bond yields rise when prices fall, so the auction suggests investors worry that inflation will remain high for some time, prompting policymakers to keep interest rates high.
That will concern the Treasury Department, as it needs to fund a growing deficit due to Donald Trump's spending plans and tax cuts, plus the refunds on the president's tariffs.
Michal Stanczyk, portfolio manager for the global fixed income team at Allspring Global Investments, says (via Bloomberg):
"Investors are being asked to absorb a growing supply of government debt globally at a time when deficits remain large, inflation uncertainty persists."
"If investors continue demanding greater compensation for inflation and fiscal risks, long-term yields could move higher and away from 5% even if Treasury auctions remain well covered."
Later today: Eurozone flash GDP report for Q2 at 10am BST, US retail sales for July at 1.30pm BST, and the University of Michigan's US consumer confidence index at 3pm BST.
