US 30-year borrowing costs hit highest since 2002, darkening market sentiment

US 30-year bond yields have hit a peak not seen since 2002, rising 5 basis points to 5.61%.

The narrative is straightforward: inflation, excessive fiscal spending, climbing energy costs, and a glut of debt are driving up the price of credit. Global lending resources are finite, and the AI capital expenditure boom has absorbed a significant portion, all while the US government runs a deficit of 6% of GDP.

Borrowing costs have risen over 30 basis points this week alone, and 70 basis points since June, when peace in Iran fleetingly seemed within reach.

The ongoing rise in yields is worrying. They increase daily, and buyers for the debt are scarce despite the attractive returns. The high cost of borrowing for the US government cascades down to businesses and consumers, undermining future economic growth.

No ready solution exists, or at least none that leaders are willing to implement. The Fed could hike rates to crush inflation, but shows little urgency to take the economic pain. In Congress, the fiscal conservative base is gone, the Tea Party movement defunct and absorbed by a MAGA faction that proposes giving $5,000 to every adult American at huge cost.

Whether inflation, spending, or capex triggered the move matters little for broader markets. The cost of capital is up, making investment less attractive and hurting equities. Across markets, the mood is to hunker down until after the midterms and a possible window opens for a solution in Iran. The sense is that conditions must worsen before enough political pressure gathers to resolve the issue.