U.S. Treasury yields have repeatedly broken above 5%, a level long seen as a psychological resistance point, prompting forecasts that rates across the market are entering an extended period of increases. Analysts say artificial intelligence investment is pushing up overall prices, making yields in the 5% range a potential new normal. Some now expect the 30-year Treasury yield to climb above 6% before the end of the year.
Yields on nearly all Treasury maturities have settled around 5%, Bloomberg reported on the 26th. The 10-year Treasury yield, the global benchmark for bond markets, is trading around 5.10%. It rose as high as 5.22% on the 24th, its highest level since June 2007. The 30-year Treasury yield also climbed to 5.501% on the 24th, its highest since 2004, while the five-year yield broke above 5% on the 23rd for the first time since 2007.
Market participants see a strong chance of further increases. In Bloomberg's recent Markets Pulse survey of 173 financial market specialists, 53% of respondents said the 30-year Treasury yield would exceed 6% this year. Should that happen, it would be the first time since 2000, during the dot-com bubble.
The biggest players in the U.S. Treasury market have also changed. Long-term investors such as governments and institutions once dominated, but hedge fund investors sensitive to short-term returns have been accounting for a growing share. China, the third-largest holder of U.S. Treasurys, held $633.4 billion as of June, down 4% from the previous month and more than 13% from a year earlier. That is the lowest level since September 2008.
A recent Fed report, by contrast, showed that hedge funds roughly doubled their exposure to U.S. Treasurys between 2023 and 2025. Their holdings amount to about 8.5% of the market.
The immediate trigger is a surge in international oil prices following renewed tensions between the U.S. and Iran. Soaring demand for capital to fund AI investment, the vast federal budget deficit and the Federal Reserve's tightening stance have also played a role. Experts say these factors suggest the jump in Treasury yields may reflect a fundamental structural shift rather than a temporary phenomenon.
Rising government bond yields are indeed not confined to the U.S. The average yield on global sovereign bonds stands at 4.04%, the highest since 2000, according to Bloomberg's global aggregate government bond index. The Wall Street Journal, citing an estimate by economist Stijn Van Nieuwerburgh released by the Brookings Institution, reported that a total of $10.3 trillion is expected to be invested in U.S. data centers and AI-related infrastructure between 2025 and 2032.
A higher neutral rate supports that view. The neutral rate refers to the level of interest rates that neither stimulates nor restrains economic growth. A policy rate above the neutral rate is considered restrictive, while one below it is accommodative. When the neutral rate rises, policy rates tend to follow, which can prolong a high-rate environment. The real neutral rate stood at 1.65% in the second quarter of this year, up from 1.36% in the first quarter of last year, according to a New York Fed model.
Skepticism persists, however. While AI is expected to drive gains in productivity, some argue that is not enough to withstand further rate increases. Karen Ward of J.P. Morgan Asset Management said it was unlikely that the 10-year yield would rise much above 5%.
Attention is now turning to comments from Fed officials ahead of next month's policy meeting. John Williams, president of the New York Fed and the central bank's second-ranking figure, is scheduled to speak on the 29th. Williams, who has struck an accommodative tone, unsettled markets on the 25th when he said at an event at the University of Oxford in Britain that policymakers cannot ignore the persistent supply shocks that are keeping price pressures elevated as tariffs and energy costs rise.
