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US Treasuries ended the week lower as oil prices rise above $100 a barrel, stoking concern about inflation that will keep the Federal Reserve from lowering interest rates anytime soon.Most US government debt was lower in late trading on Friday, pushing yields on 30-year bonds up two basis points to 4.90% — the highest since early February. Interest-rate swaps tied to the Fed’s policy meeting dates showed about 22 basis points of easing priced for this year, compared to 18 basis points seen late on Thursday.Traders are now fully pricing in the next quarter-point rate reduction in mid-2027, and a growing chorus of Wall Street economists — including TD Securities, Barclays Plc and Goldman Sachs & Co — have pushed their calls for the next cut further out the calendar.The latest moves leave the $31tn bond market on course for steep weekly losses driven by mounting concern that war in the Middle East will ignite inflation and keep the Fed on hold for longer. A sustained rise in yields since the US attacked Iran on February 28 has already nearly erased the Treasury market’s gain for the year.“The recent spike in oil prices introduces an additional source of uncertainty and raises the possibility that inflation could remain elevated for longer,” said John Lloyd, portfolio Manager at Janus Henderson Investors. “While employment has been moderating, inflation persistence limits the Fed’s ability to respond pre emptively, increasing the risk that policy remains restrictive for longer than markets might otherwise expect.”The two-year yield remains 16 basis points higher than it was a week ago after a wave of selling convulsed the market and oil soared. Longer-dated yields were also higher at the end of the week, with 30-year yields up 15 basis points to 4.91% on the week. A heavy slate of corporate issuance, plus a trio of Treasury auctions this week, added to the pressure.Brent crude futures advanced again at the end of the week, moving above $100 — far higher than the $70-per-barrel area they traded in late last month. As concern about inflation rises, the challenge for bond investors is that oil prices may need to rise a lot further before tipping the scales from inflation worries to one of a bigger hit to economic activity that would prompt Fed easing. Oil price shocks in prior decades have ultimately helped drive the US economy into recession, as seen in 1974, 1981, 1990, 2001 and 2008.Treasuries offered a muted reaction to a barrage of data, which showed US consumer spending barely ticked higher in January and growth that was weaker than previously reported for the fourth quarter of 2025. The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Fed, rose a firm 0.4%. US consumer sentiment also declined to a three-month low. Two-year yields were little changed on the session around 3.73% after earlier falling.The figures, taken together with the inflationary risks tied to war in the Middle East, have investors weighing the path for rates as the Fed is forced to reckon with price pressures — and pressure from President Donald Trump for cuts.“The rates market has been focused on the inflation shock posed by the war over the last two weeks, and the curve has significantly bear flattened,” said Priya Misra, portfolio manager at JPMorgan Asset Management. The firm has increased its interest-rate exposure in portfolios as rates have backed up because “we think that a geopolitical shock is more a stagflationary shock.”Before this week’s spike in oil prices, the market had been fully pricing in one or more quarter-point cut this year. As recently as late February, traders had fully priced in at least 50 basis points of easing. Now, the next fully priced-in rate cut is seen next year.Economists at both TD and Barclays shifted their forecasts for the next Fed cut in September from June, while ING acknowledged the risk that reductions are delayed into 2027. Earlier this week, Goldman Sachs economists also scrapped their call for a Fed rate cut in June based on “a higher inflation path.” They now predict cuts in September and December, versus June and September.Those shifting expectations ramp up the temperature around the central bank’s meeting next week, with all eyes on how Chair Jerome Powell defines the oil price shock and last month’s negative jobs report. The Fed is widely expected to leave rates steady in March.“How Powell frames this narrative in the press conference is really important, and we could have a lot more potential volatility than before,” said John Briggs, head of US rates strategy at Natixis North America. 

US Treasuries fell as conflict in the Middle East sent oil prices soaring, stoking fear inflation will accelerate and forcing traders to scale back wagers on the likely scope of interest-rate cuts.Yields rose from the lowest levels in months as traders focused on the risk that the fighting reignites inflation — potentially dimming the chances of more Federal Reserve easing this year. President Donald Trump, who’s pushing for regime change in Iran, has said the bombing campaign that the US and Israel launched over the weekend could continue for weeks. Iran, meanwhile, countered with strikes across the region.Monday’s bond slump is on track to be the steepest since October. The two-year yield surged 10 basis points to 3.48%, while the 10-year rate rose 11 basis points to 4.04%. The yield on the long bond climbed less. In futures tied to the Fed’s path, traders now see roughly two quarter-point cuts by year-end, pushing a possible third reduction into 2027.The slide marks a reversal from last week, when 10-year yields touched the lowest since April as tension between the US and Iran mounted, and as angst around the disruptive threat from artificial-intelligence roiled stocks. The start of the week drove home how the threat of hot inflation risks dominating the fixed-income outlook, rather than a rush to the shelter of US government debt, as typically happens in times of crisis.“The risk reward for flight-to-quality buying isn’t there in fixed-income,” said Jan Nevruzi, a strategist at TD Securities. “In hindsight, rates markets might have been baking in some of the possibility of a geopolitical escalation.”The selloff in Treasuries deepened following a report showing US manufacturing expanded in February while input prices soared.European government bonds also fell on Monday and market gauges of inflation surged as the effective closure of the key Strait of Hormuz drove up oil by the most in four years.US short-dated inflation swap rates surged along with oil. The rate on the one-year contract linked to consumer prices rose 12 basis points to 2.62%, mirroring a similar move in euro-denominated swaps.More than geopolitical shocks, higher oil prices can “significantly” lift yields, a Deutsche Bank AG report last week showed. The strategists analyzed the largest geopolitical events of the last several decades, including Iraq’s invasion of Kuwait in 1990, the Sept. 11 attacks on the World Trade Center and Russia’s invasion of Ukraine.A Monday report from Societe Generale SA strategist Manish Kabra, meanwhile, found that five oil supply shocks over the past 50 years had on average weakened the 10-year Treasury note over the following one week, three-month and six-month timeframes.Investors must also weigh the potential impact on government bond supply, whether in relation to funding an extended military operation, or easing the inflationary burden on households and businesses.At Fidelity International, portfolio manager Mike Riddell increased a position that will profit if long-dated Treasuries, which are more sensitive to fiscal risk, sell off.“It’s been a trend for a while for governments around the world to subsidize energy and food prices,” he said. “This trend will only accelerate if the Middle East crisis persists or escalates, which makes long end sovereign bond yields vulnerable at current levels.”US government debt is coming off a strong February, which saw the 10-year yield sink back below 4% for the first time since November, while two-year yields fell to the lowest since August 2022.That move and the focus on inflation help explain the rise in yields on Monday, said John Taylor, head of European fixed income at AllianceBernstein, in a Bloomberg TV interview.Still, the haven properties of Treasuries may ultimately come back into play, he added.“The longer this goes on, and if oil prices stay higher for a longer period, people will start to think about the negative economic consequences of that — and that could push Treasury yields lower,” Taylor said.While money markets pared bets on the chances of three Fed rate cuts this year, they broadly held course for that degree of easing by the end of 2027.Some investors are already buying Treasuries as a safety buffer.Franklin Templeton’s Andrew Canobi, added to Treasury holdings, mostly via futures. The Melbourne-based money manager said that if the situation persists or even escalates, then “markets will price for a classic downside scenario.” 

It’s the biggest pile of debt in the world — the $30tn US Treasuries market. It’s been built with the help of foreign central banks and investors, who have clamored to buy US government bonds through good times and bad. But what happens if their appetite wanes?China’s government has been steadily trimming its holdings over the past decade. While it’s still one of the biggest foreign owners of US Treasuries, its stockpile has almost halved since reaching a peak in 2013, dropping to $683bn in November, the lowest since 2008.Now, Beijing has urged Chinese banks to scale back their private holdings. Cutting those positions would reduce China’s reliance on the US — bolstering financial and national security, especially in times of tensions. But an overly rapid selloff in Treasuries might send the yuan higher and undermine China’s powerful export engine. What prompted Beijing’s guidance on US Treasuries?Chinese officials have framed the move as an effort to help banks generally reduce concentration risk and limit their exposure to market volatility. But the broader context points to Beijing’s strategic goal: reducing the country’s reliance on US assets as tensions persist over trade relations, technology and Taiwan.Policymakers are mindful of the precedent set in 2022, when the US and its allies froze about $300bn of Russia’s central bank reserves after the invasion of Ukraine. The worry is that if tensions were to escalate, the US could — in an extreme scenario — restrict access to China’s state and privately held dollar assets in a similar fashion. Are there disadvantages for China?China’s government has been building its gold stockpile for a decade and sharply accelerated purchases in 2025, making it one of the world’s largest official holders. But beyond bullion, China has few viable alternatives for investing its roughly $3.4tn in foreign-currency reserves — the world’s largest stash — and its domestic banks face the same problem.Other sovereign bond markets, for example those in Europe and Japan, are sizable but lack the depth and liquidity of the US Treasury market. And because countries such as Germany, France and Japan are US allies, it’s possible they would coordinate with Washington and impose similar sanctions if the US were to freeze China’s holdings. Other markets, such as equities or real estate, are either too risky or insufficiently liquid.There are also potential repercussions for China’s economy and balance sheet. A rapid, large-scale selloff would likely push Treasury prices down and US yields up, which could in turn weigh on the US dollar. A weaker dollar would make US exports more competitive and in turn dampen demand for Chinese goods — especially on top of tariffs imposed by US President Donald Trump. A falling dollar would also reduce the value of China’s remaining dollar-denominated assets.Finally, an overt move away from Treasuries could invite retaliation from the US, undercutting the financial stability China wants to preserve. Are there repercussions for the US?The initial dip in Treasury prices that followed Beijing’s call to curb banks’ holdings was brief, suggesting investors see limited repercussions for the market and are not expecting a sharp deterioration in China-US relations as a result.A more aggressive shift, however, could prove problematic. If China were to stop purchases altogether — or in an extreme scenario sold a large number of Treasuries — it would push bond prices lower and yields higher. That would mean increased borrowing costs across the US economy, including mortgage rates, corporate loans and government financing.Such a selloff could also prompt other countries to follow suit, potentially denting the dollar’s status as a global haven. That said, an outright dumping of Treasuries is widely viewed as unlikely. Why does China hold so much US debt in the first place?China’s massive stockpile of US debt isn’t simply an investment choice. It is largely a byproduct of its export-led economy. Due to the low cost of its products, the Asian nation has for decades sold far more goods to the US — such as toys, apparel and electronics — than it has bought. Those trade surpluses have generated a steady inflow of dollars.Chinese exporters can’t use dollars directly to pay wages or expand their businesses at home. While they can, in theory, convert dollars into yuan through the banking system, many exporters choose to keep their dollar earnings offshore and invest them in foreign securities, paying workers from their yuan revenues instead, because it’s more financially advantageous.For the central bank, holding a large reserve of Treasuries also serves a strategic purpose. It gives the People’s Bank of China firing power in a crisis, allowing it to support the yuan and stabilize local markets by selling their reserves when needed, just as it did in the aftermath of a shock devaluation in 2015. Are other countries or institutions selling their US Treasuries?Denmark’s AkademikerPension — a $25bn pension fund — said in January after US President Donald Trump threatened to acquire Greenland that it would sell the roughly $100mn of Treasuries it held. Dutch pension fund Stichting Pensioenfonds ABP says it’s reduced its exposure to US government bonds, cutting holdings by roughly €10bn to €19bn in the six months through September.Outside Europe, India’s holdings have fallen to a five-year low as authorities have acted to support the rupee and diversify its reserves. Brazil has also reduced its long-term Treasury holdings.Meanwhile, Japan, the UK and Canada each increased their holdings of Treasuries over the year through November 2025, according to official data.Overall, foreign holdings of Treasuries hit a record $9.4tn in November, but foreign investors now account for a smaller share of the total debt market than they have previously, reflecting the rapid growth of US government borrowing. Overseas investors now hold about 31% of Treasuries, down from roughly 50% at the beginning of 2015. 

Long-dated bonds are facing renewed selling pressure, ramping up borrowing costs around the world and creating a headache for investors and policymakers.Yields on 30-year US Treasuries were around 5% in early September, a level last reached in July. Those on Japan’s 20-year notes climbed to their highest since 1999, while yields on 30-year UK gilts jumped to levels last recorded in 1998. French and Australian government bonds are among the others experiencing a selloff too.The rising yields signal investors are demanding extra compensation for holding government debt in the face of spiralling budget deficits and sticky inflation. The mounting worry is that politicians lack the ambition, or even the ability, to rein in their countries’ debt, while central banks may struggle to combat the mix of sustained price pressures and ebbing economic growth.What’s been happening with long-dated bonds?Traders usually buy and sell bonds based on the relative appeal of their fixed coupon payments. The longer there is until a bond “matures,” the more that can go wrong in the interim. Long-term bonds with a duration of between 10 and 100 years tend to offer higher interest rates than shorter-term treasury bills that are repaid in less than a year, to compensate buyers for the additional risk.When a country’s economic outlook worsens, bond yields typically fall. This is because a weaker economy encourages central banks to shift their focus from combating inflation to stimulating economic activity. That means a bias toward lowering benchmark interest rates, boosting the relative appeal of bonds versus cash in the bank.But lately, yields for long bonds have been rising. In the US, that’s in part because the economy has slowed, not collapsed, and inflation has remained stronger than forecast.Why are there concerns about debt and deficits?Governments across the world loaded up on cheap debt after the 2008 global financial crisis, then borrowed even more to cope with Covid-19 lockdowns and accompanying recessions. Global debt reached a record $324tn in the first quarter of 2025, driven by China, France and Germany, according to the Institute of International Finance.A surge in inflation since the pandemic made that scale of borrowing harder to sustain. Major central banks raised interest rates and wound down their bond-buying programs, known as quantitative easing, which were designed to lower borrowing costs. Some central banks are now even actively selling the debt they accumulated via quantitative easing back into the market, adding further upside pressure to yields.The concern is that if bond yields stay high and governments fail to get their fiscal houses in order, the cost of servicing some of that debt will just keep climbing.In the US, the cost of President Donald Trump’s sweeping tax-and-spending law is a further worry for bond investors. The One Big Beautiful Bill Act could add $3.4tn to the US deficit over the next decade not accounting for dynamic effects such as the potential growth impact according to the Congressional Budget Office, which provides nonpartisan analysis of US fiscal policy.Moody’s Ratings stripped the US of its last-remaining top credit score in May, citing fears that the ballooning national debt and deficit will damage the country’s standing as the preeminent destination for global capital.What’s been driving the recent bond selloff?As well as the lingering debt strains, politics have been a major factor.After criticising Federal Reserve Chair Jerome Powell for not cutting interest rates more quickly, Trump’s move to oust Fed Governor Lisa Cook has deepened concerns around the central bank’s independence. The worry is that Trump succeeds in replacing Cook and others with officials more inclined to lower borrowing costs regardless of inflation risks.A deluge of corporate debt sales isn’t helping either, as this can sometimes siphon demand from government bonds. Both companies and sovereign borrowers across the world sold at least $90bn in investment-grade debt in early September, as parts of global credit markets neared or toppled records in one of the busiest weeks this year.September is also a traditionally bad month for longer-dated bonds as traders return from their summer break and readjust their portfolios. Government debt globally with maturities of over 10 years posted a median loss of 2% in September, according to data compiled by Bloomberg.The mix of risks is pushing the so-called “term premia” what investors demand for the uncertainty of holding bonds for longer ever higher.Why is a spike in long bond yields a problem?Investors want the bond market to be safe and boring, as these assets are what many of them hold to ensure a rock-solid stream of income to balance out the volatility of higher-risk, higher-reward investments such as technology stocks.When longer-term yields jump, they feed into mortgages, auto loans, credit card rates and other forms of debt, squeezing households and companies, and thus broader economies.And if long bond yields stay high for longer, it will gradually affect how much it costs a government to borrow money. That, and any accompanying deterioration in economies, could mean a “doom loop” in which debt levels climb even higher no matter what governments do with tax and spending.At times, rebellions in markets can even lead to the fall of governments as seen in the UK in 2022 after then-Prime Minister Liz Truss’s mini-budget, which included billions in unfunded commitments, roiled the bond market and led investors to drive up borrowing costs. In the early 1990s, so-called bond vigilantes were said to be powerful enough to force President Bill Clinton to rein in US debt.Where could things go from here?It’s not clear what a prolonged period of higher borrowing costs would mean for the mountain of long-term debt that governments binged on during 15 years of ultra-low interest rates. The upward shift in yields is already leading to new phenomena with unpredictable consequences.One example: Japan’s government bonds used to have such low yields that they acted as a kind of anchor by adding downward pressure on yields the world over. But they’ve shot higher in recent months, adding to the volatility in global bond prices and attracting foreign investors to Japanese debt in significant numbers. This could mean fewer buyers for debt sold by other nations.In the UK, the pressure is mounting on Chancellor Rachel Reeves to show she’s on top of the nation’s finances in an upcoming budget.In the US, there’s still concern that post-pandemic inflation isn’t yet under control and that Trump’s tariffs could add further inflationary pressure that exacerbates the bond yield spike. On the other hand, his trade war may also dampen economic activity, leading the Fed and other central banks to cut interest rates.Or both could happen, whereby there’s a surge in prices accompanied by falling economic output or zero growth a situation known as stagflation. This would add to the uncertainty over monetary policy, forcing the Fed to choose between supporting growth or suppressing inflation.Is this a taste of the future for long bond yields?Jamie Rush, Tom Orlik and Stephanie Flanders of Bloomberg Economics argue that politics and structural forces could potentially make 10-year Treasury yields of 4.5% the new normal.That comes as decades of decline in the “natural” interest rate the real interest rate that would prevail if the economy were operating at full employment with stable inflation have already ended, and partially reversed.“In the years ahead, the natural rate is set to edge higher still,” Rush, Orlik and Flanders wrote in a book, The Price of Money, published in August 2025. “If risks from debt, climate, geopolitics, and technology crystallise, it could rise quite a lot.”