What’s Pushing Long-Term Bond Yields Higher?

Long-term bond yields are rising mainly because of heavier sovereign borrowing, competition from AI-related corporate issuance and persistent fiscal and inflation concerns, but today’s higher yields are creating better long-term entry points for bond investors.

• The U.S. 30-year Treasury yield reached roughly 5.3% in the past week, a level not seen for nearly two decades, while long-term yields also rose sharply in Europe, the U.K. and Japan.
• Global repricing reflects deteriorating government-debt dynamics: U.S. government debt crossed $40 trillion this week, more than doubling over the past decade, and the Treasury said on 19 August that it would at least double planned buybacks of 10- to 30-year debt.
• AI-related corporate bond issuance, much of it long-dated, has become large enough to compete with government bonds for investor capital, although PIMCO does not view it as the dominant driver of yields.
• The move has mainly been driven by higher real yields rather than a larger inflation premium, since breakeven inflation rates have remained comparatively stable; the 10-year U.S. yield has nevertheless stayed within PIMCO’s 3.75%–4.75% reference range.
• The repricing has steepened yield curves and raised the term premium, while further fiscal stimulus or worsening expectations for government debt supply could push yields into a higher range.

Takeaway: PIMCO expects the higher term premium to persist absent an unexpected downturn, but sees current long-term sovereign yields as increasingly attractive because inflation-adjusted income, carry and roll-down can better offset price declines than in 2022; it would add exposure if yields rise further.