Investors demand higher premium for long-dated government bonds as term premium hits multi-year highs

The bond market is sending a very clear message to Washington: holding your debt for decades isn’t worth it unless you pay up. Investors are demanding significantly higher premiums to own long-dated US Treasuries, pushing yields on 30-year bonds above 5.2%, levels not seen since 2007. The term premium on 10-year Treasuries, essentially the extra compensation investors require for locking up their money over a longer horizon instead of rolling short-term bonds, has surged to an estimated range of 0.80% to 1.35%. Earlier this year, that figure sat below 0.50%. What’s driving the sell-off Two forces are colliding. On one side, sticky inflation has made investors skeptical that the Federal Reserve will bring prices under control anytime soon. On the other, the US government keeps issuing enormous amounts of debt to fund persistent deficits, flooding the market with supply at a time when demand is shrinking. The US fiscal deficit reached $1.6 trillion for the year ending April 2024, and the trajectory hasn’t improved since. More bonds hitting the market means buyers can be pickier, and right now they’re picking higher yields. Making matters worse, the traditional big buyers of Treasurie...