Yields Climb to Record Levels Amid Inflation Fears and Rising Debt

Long-term yields on government bonds have reached record levels not seen in nearly two decades. According to analysis from Prometeia, the rise was fueled by a combination of inflation fears, mounting public debt, and an unexpected source of competition for investor demand. Between late June and mid-September, the US 10-year yield rose by more than half a percentage point to reach 5%, its highest point since summer 2007 and above the 4.98% peak recorded in October 2023.

The trend was not confined to the US, with the 30-year yield climbing to 5.37%, also a level last seen in June 2007. Prometeia notes that markets revised inflation expectations upwards, with Eurozone inflation swap rates exceeding 3% for one- and two-year maturities.

Public debt is another source of anxiety, with the US federal debt held by the public reaching $31.7tn in Q2-26, equal to 97.5% of GDP. Gross interest payments now absorb roughly 21% of US government tax revenue, almost double the share at the start of 2022.

The surge in long-dated issuance by AI companies may also be drawing away marginal demand that would otherwise roll into maturing Treasuries. In mid-August, the US Treasury moved to shore up liquidity at the long end, but the effect proved short-lived.