Long-term U.S. Treasury yields climbed last week, driven by concerns over fiscal sustainability and a shift in investor expectations following the appointment of a new Federal Reserve chair. The U.S. 10-year yield rose 4 basis points, while the 2-year and 30-year yields increased by 6 and 1 basis points, respectively, contributing to broader market volatility.
Wolfe Research attributed the rise in yields since late June primarily to uncertainty surrounding Federal Reserve policy under the new leadership, with investors demanding a higher term premium for holding longer-duration bonds. The firm noted that this trend could have implications for capital-intensive sectors, particularly those reliant on fixed-income financing for growth initiatives.
The Treasury Department’s recent measures, including an expanded bond buyback program and currency intervention in USD-JPY, were cited by Wolfe as potential supports for risk assets and rate-sensitive equities, though markets have yet to fully price in these actions. The firm suggested that these steps may help stabilize conditions, but volatility in rates and equities is expected to persist.
Wolfe also highlighted the fiscal backdrop, pointing to record-high U.S. government debt and persistent deficits as structural pressures on long-term rates. The firm emphasized that policymakers have an incentive to keep long-term borrowing costs low, given the increasing reliance of hyperscalers on fixed-income markets to fund AI capital expenditures.
Looking ahead, market participants will focus on Wednesday’s Nvidia earnings release and the July PCE inflation report, followed by remarks from Fed Chair Kevin Warsh at the Kansas City Fed’s Jackson Hole Economic Policy Symposium on Friday. Wolfe warned that companies with high leverage—defined as net debt to EBITDA in the top quintile of their sector or above 3.5 times with 30% of debt maturing soon—are particularly vulnerable if long-term yields continue to climb.
