Bond Yields Resume Their March Higher

US bond yields have resumed their upward march this week, with the 30-year Treasury yield climbing to levels not seen since 2002, around 5.6%. The 10-year yield is trading near 5.25%, its highest mark since 2007. The move is being driven by a clear combination of forces. Oil and inflation shocks continue to push central banks toward higher interest rates. Unprecedented fiscal deficits, with US national debt now past $40 trillion, are forcing heavy new Treasury supply onto the market. And beyond government borrowing, massive AI-related capital expenditure by big tech is competing for the same pool of capital, creating an additional crowding-out effect.

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This is not solely an American story. Global bond yields are also pushing higher, as investors reassess the cost of capital across major markets. The net result is that buyers are demanding higher premiums to absorb the growing supply of debt, which is keeping yields elevated. Should yields continue to grind higher, they will remain a meaningful headwind for risk assets given what the move implies about the potential drag on economic growth from tighter financial conditions. The question now is whether the US Treasury Department is prepared to live with these surging yields or whether it has a plan to address them.

Higher yields are also providing ongoing support to the US Dollar. The Dollar Index (DXY) was last seen trading just above 101.30 in early Asian hours on Wednesday. The USDJPY pair remains relatively steady around the 157 level, with the threat of further Japanese intervention helping to keep a lid on further yen weakness. Elsewhere, the Australian dollar has lost ground, slipping back below the 0.70 level against the greenback. This occurred despite the widely expected Reserve Bank of Australia rate hike on Tuesday. The Aussie fell after the RBA’s decision process revealed internal debate between a 25-basis-point increase and a hold, even as the Governor maintained a hawkish tone.

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The combination of high yields and a firm Dollar continues to act as a headwind for gold. The precious metal was sold off heavily on Monday, but Tuesday’s rebound, even while yields kept rising, showed that dip-buying remains active and that the more than 3% downside move earlier in the week may have been overdone. Still, for gold to make more convincing progress from here, it will likely need assistance from either a weaker Dollar or a pullback in Treasury yields. Technical levels to watch include support at $4,120, with resistance at $4,210 and $4,270.

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Oil has softened this week on reports that Saudi Arabia’s export picture is improving. Ship-to-ship transfer operations appear to be bearing fruit, and the East-West pipeline has returned to service, albeit at roughly half its normal capacity. US-Iran negotiations are still taking place in the background, but the ongoing risk of further damage to energy infrastructure around the Gulf is helping keep Brent above the $100 mark for now.