Long Yields and the Search for Demand

The recent rise in 30-year U.S. Treasury yields to multi-year highs cannot be attributed to a single factor. Rather, it reflects a combination of persistent inflation, large structural government deficits, resilient economic growth, and increasingly challenging supply-demand dynamics, with fewer buyers available to absorb a growing volume of government debt.

More government bonds to go around

High government spending has become the norm not only in the United States but across many developed economies.

Exhibit 1: The U.S. 30-year yield is at its highest level in nearly two decades

Source: U.S. Department of Treasury, Macrobond
As of August 19, 2026

Exhibit 2: U.S. federal debt is set to continue to rise

Source: U.S. Congressional Budget Office (CBO), Macrobond
As of March 19, 2026

Fiscal deficits remain large, persistent, and increasingly broad-based. While the underlying drivers vary by country, the trend is consistent: greater spending on defense, infrastructure, energy security, and industrial policy, largely financed through borrowing. For bond investors, the policy rationale behind these expenditures is less important than their market impact. The key issue is the steadily increasing supply of government bonds that must be absorbed by investors.

Fewer buyers of government bonds

At the same time, demand for long-term government debt has weakened. Central banks are no longer expanding their balance sheets by purchasing duration, and foreign official demand appears less robust than in previous years. More recently, the hedge fund basis trade, which involves buying government bonds, has lost momentum and is providing less support to the market. Corporate issuance, particularly by hyperscalers, represents another important headwind. At the margin, new capital that flows into long-dated IG corporate bonds is money that is not going into government bonds.

Exhibit 3: IG issuance has continued to increase

Source: SIFMA (Securities Industry & Financial Markets Association), Macrobond
As of August 5, 2026

Good growth and rising productivity may require higher rates

There are also fundamental reasons why yields may need to remain elevated. If economic growth continues to hold up, the AI-driven capital expenditure boom persists, and fiscal policy remains supportive, investors may conclude that current interest rates are not significantly restraining economic activity. In that environment, yields could remain near current levels for an extended period.

Sticky inflation quickly erodes the value of money

Inflation in the United States has remained above target for nearly five years. Fed Chairman Warsh has repeatedly highlighted this challenge, yet when questioned about the path of short-term interest rates, he has been vague and hesitant about the need for rate hikes. If monetary policy is not sufficiently restrictive, inflation is likely to remain above target, reducing the real value of future cash flows and making long-term debt less attractive to investors.

Sum of the parts = higher risk premium

Faced with a growing supply of long-dated government debt, persistent inflation, and reduced demand, investors require greater compensation to hold long-term bonds. Markets will ultimately clear, but only at higher yields that reflect this elevated risk premium.

Bottom Line

While there are solid fundamental reasons for yields to remain higher than they were over the past decade, the sharp increase in risk premiums has drawn the attention of policymakers. While neither the Treasury nor the Fed can eliminate government deficits or slow AI-related investment spending, they can influence the maturity profile of government debt and the amount of duration the market must absorb. In fact, the U.S. Treasury announced a doubling of long-term bond buybacks, an action expected to reduce the supply of 20- and 30-year bonds by approximately 14% to 16%. 

Such interventions are far from unprecedented, but their historical record is mixed. Examples globally include Japan and the United Kingdom, which have suffered episodes of disorderly rise in long-term yields. In both cases, after a period of calm following intervention or policy adjustments, yields resumed their path higher following fundamentals or the global yield backdrop. 

Recent intervention sends a strong signal to the market, and we therefore expect it to cap long-end yields and reduce rate volatility in the near term. Over the medium term, however, it remains unclear whether interventions will be sufficient to counter the fundamental forces driving yields and risk premiums higher. Sustained relief for long-term bonds will likely require renewed confidence in the Fed’s inflation-fighting credibility, stronger investor demand, moderating investment-grade corporate issuance, or a meaningful slowdown in economic growth.

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