US bonds alert: Fed faces hard choice

U.S. 30-year bond yields have risen to their highest level in nearly two decades, influenced by an increasing government deficit, outflows from long-term bond sales, and persistently high inflation above the Federal Reserve's five-year target. The market responded to higher corporate borrowing for investments in artificial intelligence, amid declining demand for these bonds from traditional buyers. Meanwhile, the U.S. government’s annual deficits continue to approach $2 trillion, with national debt reaching approximately $40 trillion. This situation has pushed the interest rate on long-term bonds up to 5.31%, the highest since 2007, with warnings that the Federal Reserve’s hesitation to tighten monetary policy further could keep yields elevated, posing a risk to financial markets.

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