What’s Behind US Treasury Yields’ Recent Rally?

In early September 2025, US Treasury yields have surged, reflecting deep market concerns over the nation’s fiscal health and global trade uncertainties. The 10-year US Government Bond yield climbed to 4.279%, up 0.047 percentage points or 1.11%, with the bond priced at 99.245% of par, down 0.381%. The 30-year yield rose to 4.974%, a 0.045-point increase or 0.91%, with its price at 96.168% of par, down 0.70%. This escalation follows a federal appeals court ruling on August 29, 2025, striking down most tariffs imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA), though the tariffs remain in effect until mid-October pending potential Supreme Court appeals.

Speculation is mounting that the US government may need to refund billions in collected tariffs, potentially adding tens of billions to the federal deficit. This development exacerbates fiscal pressures, as analysts estimate it could increase inflationary pressures by up to 1.8% in the short term if unresolved, pushing yields higher as investors demand compensation for heightened risks. These concerns have shaken confidence in US assets, leading to a significant sell-off in Treasury bonds, with the 30-year yield nearing the critical 5% threshold for the first time in weeks.

An inverse relationship exists between Treasury yields and bond prices, meaning that as prices fall due to intense selling, yields rise. This dynamic has been amplified by fears over the Federal Reserve’s independence and the looming non-farm payrolls report, which could signal labor market strength and reduce expectations for aggressive rate cuts. The resulting pressure has dragged down major equity indices like the Dow Jones and S&P 500, reflecting broader market unease.

Long-term Treasury yields are expected to climb further, driven by ongoing tariff-related uncertainties, with additional measures anticipated before the end of 2025. Seasonal factors, such as the cooling of asset price surges post-summer, and the threat of a government shutdown if Republicans and Democrats fail to agree on a federal budget by late September, add to the complexity. The Treasury anticipates significant debt issuances this month, further fueling yield increases.

In August 2025, while traders enjoyed beach vacations, the 30-year Treasury yield outpaced short-term yields, widening the gap and spotlighting a rare phenomenon known as the “bear steepener.” This occurs when the spread between long- and short-term yields grows, driven by market anticipation of higher inflation and borrowing. The yield curve, a key economic indicator, has steepened compared to a month ago, signaling expectations of sustained growth or persistent inflation.

Globally, US yields are high relative to peers, with Canada’s 10-year yield at 3.45% (maturing June 2035), the UK’s at 4.80% (March 2035), and Germany’s at 2.78% (August 2035). Emerging markets like Brazil (14.02%) and India (6.57%) reflect higher risk premiums. For 30-year bonds, the US rate exceeds Canada’s 3.90% and China’s 2.07% but trails the UK’s 5.69%. These comparisons highlight the US’s unique fiscal challenges, amplified by tariff disputes and rising oil prices, which could further stoke inflation.

The broader implications are significant, from a slowing housing market due to higher borrowing costs to mounting challenges for the Federal Reserve in balancing growth and inflation. If yields continue to test resistance levels, such as 4.2% for the 10-year or above 5.25% for the 30-year, markets may face increased volatility, potentially signaling deeper concerns over debt sustainability. As investors navigate this turbulent landscape, the trajectory of US Treasury yields remains a critical gauge of economic stability and global financial dynamics.