US 30-year yield tops 5.3% as federal debt hits $40 trillion

The US 30-year Treasury yield broke above 5.3 percent for the first time since 2007 as gross federal debt crossed $40 trillion, pushing annual interest costs to $1.37 trillion and reshaping where global investors park capital.

"The gross national debt has doubled in the last ten years; in less than twenty years, it has quadrupled," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan group.

The 30-year yield touched 5.337 percent intraday on Aug. 18, its highest since June 2007, while the 10-year reached 4.747 percent. The Treasury Department reported gross debt of $40.047 trillion on Tuesday, with $32.266 trillion held by the public and $7.782 trillion owed to government trust funds. Debt equals 124 percent of GDP, the most since World War II.

The repricing is forcing a rotation in emerging markets. For the week ended Aug. 20, Taiwan, South Korea and India drew net foreign inflows of $1.4 billion, $1.2 billion and $790 million respectively, while Brazil saw $4.1 billion leave, CLSA data show.

Federal interest expense has doubled within four years to $1.37 trillion, equal to 18 percent of total spending and 4.2 percent of GDP, the highest level this century, CLSA strategists wrote in a global equity strategy report. The cost of servicing the debt is projected to reach $1.4 trillion this year and, within two years, to exceed social security as the largest single item of government spending.

The deficit for the fiscal year ending Sept. 30 is projected at $2.1 trillion, close to 6 percent of GDP, after July's monthly shortfall reached $432.3 billion, the largest in more than five years. The Congressional Budget Office warned earlier this year that the fiscal trajectory "is not sustainable," projecting debt held by the public will rise from 101 percent of GDP this year to 120 percent in 2036, surpassing the record 106 percent recorded in 1946.

Rising yields redraw the emerging-market map

The surge in long-end yields is redirecting capital toward markets with improving earnings momentum. For the week ended Aug. 20, Taiwan, South Korea and India recorded net foreign inflows of $1.4 billion, $1.2 billion and $790 million respectively, with cumulative inflows reaching $16.4 billion over the past three weeks, CLSA data show. Brazil recorded net outflows of $4.1 billion over the same period.

August earnings forecast revisions showed broad-based strengthening, particularly in developed markets, marking the strongest level since October 2021. Japan reached its highest level since at least 2000, while Singapore's revisions were the best since 2009. Among emerging markets, Taiwan, Poland, Thailand and South Korea led the gains, while China and India saw further recovery, bringing overall emerging-market revisions back into positive territory for the first time since March.

CLSA's Asia-Pacific ex-Japan focus list of 20 stocks includes five Hong Kong-listed names: BYD, CK Hutchison Holdings, CSPC Pharma, Nongfu Spring and Tencent.

Fiscal arithmetic tightens

The bond selloff hits the US government first. Federal interest expense as a share of GDP is projected to rise to 3.3 percent this year and could reach 4.6 percent by 2036, well above the half-century average of 2.1 percent, according to the CBO. The projection assumes a 10-year yield of 4.1 percent, below the current level of roughly 4.7 percent; if rates across all maturities ran 0.1 percentage point higher than projected, net interest costs would rise by an additional $379 billion.

"The core issue isn't rising rates per se—it's the fiscal deficit," said Michael Strain, director of economic policy studies at the American Enterprise Institute. "If you can only focus on one thing, it should be the deficit outlook over the next 10 years."

The last time the 30-year yield surged from the 4 percent range to the 6 percent range within six months was June 1999; less than four months later the S&P 500 fell into correction territory, and nine months after that the index peaked before the dot-com bubble burst. BTIG chief technical strategist Jonathan Krinsky warned that equity markets are not prepared for a scenario where the 30-year yield charges toward 6 percent.

Gold has so far defied the climb, holding near $4,400 an ounce even as real yields on 30-year Treasury Inflation-Protected Securities topped 3 percent, a level Commerzbank's Carsten Fritsch called a rare buying opportunity. Treasury Secretary Scott Bessent said this month the administration inherited "a mess" from its predecessor and announced he would double debt buybacks in secondary markets to bring down financing costs; yields have continued to climb, exposing the limits of such operations.

This article is for informational purposes only and does not constitute investment advice.