10-Year and 30-Year Treasury Yields Hit 24-Year Highs

The 10-year and 30-year U.S. Treasury yields have climbed to 24-year highs, increasing borrowing costs for households and businesses, but real yields may have room to decline as temporary pressures ease, Treasury counselor David Zervos said Thursday.

The 10-year and 30-year Treasury yields have surged in recent days, weighing on demand for loans such as mortgages. The move has coincided with higher borrowing costs across several major developed economies, including Germany, France, Italy and Japan.

“These real yields are really, really high by any historic standard, so I think we have some room to come down in the future,” Zervos said.

Zervos said longer-term expectations for interest rates and inflation have changed less than short-term rates. The Federal Reserve lifted interest rates last month for the first time in three years, and officials signaled that additional increases could come before the end of the year.

The probability of the Fed’s next increase at its December meeting exceeded 82% in futures markets. Higher expected rates typically raise the return investors demand to hold longer-term government debt, adding to borrowing costs throughout the economy.

Corporate spending on artificial-intelligence infrastructure has also contributed to pressure on global real yields, Zervos said. He described the investment as positive for the broader economy while characterizing its effect on yields as a short-term issue.

Zervos also said yields could decline after the energy shock caused by the U.S. war with Iran is resolved. “We’re just going to have to live with that for a short period of time,” he said.

The increase in borrowing costs is not limited to the United States. Zervos said the U.S. has performed well relative to several other developed markets as yields have risen globally.