Global bond rout rolls on, pushes 30-year U.S. Treasury yields to highest since 2004

By Amanda Cooper and Sophie Kiderlin

LONDON, Sept 23 (Reuters) - ‌U.S. 30-year borrowing ​costs hit their ​highest in over 20 years on Thursday, adding strain to the government's long-term finances, as investors upped the compensation they demand to hold bonds given strong economic growth and high energy prices.

The yield ‌on the 30-year U.S. Treasury climbed to just over 5.44%, its highest since 2004, as ⁠prices fell.

Global bond yields jumped on Wednesday and Thursday after business activity data pointed to strong U.S. growth and rising inflation pressures, stoking Federal ‌Reserve rate-hike bets.

Global bond markets have been ‌under pressure for months as the Iran war pushed up energy prices, growth has proved resilient and investors fret about high levels of government debt.

Yet investors have, so far, absorbed the rise in yields to multi-decade highs, ​given the resilience of underlying economic growth, booming corporate profits and the avalanche of spending particularly related funding the AI boom.

"Obviously the higher things go, the worse everything looks, and the more expensive U.S. mortgages will be, for ⁠example, and the bigger the debt interest burden of the federal government," said Daiwa Capital's head of economic research Chris Scicluna.

"But for as long as it's ​orderly, it's not overly dramatic."

While shorter-dated Treasury yields track expectations for interest rates, the 30-year yield reflects investors' willingness to finance government borrowing in the years ahead.

Germany's finance agency said ​on Thursday it expects federal borrowing to hit a record €525.5 billion ($598 ‌billion) in 2026 and to rise further next year, driven largely by rising refinancing needs and growing requirements for special funds.

Japan's 10-year bond yield on Thursday hit its highest since 1996.

BROADER ⁠HIT

The cost to households has been immediate.

U.S. 30-year mortgage rates are now a percentage point higher than they were before the war and, at 7%, around their highest in two years.

But with nominal growth running at around 8% in the second quarter and showing ⁠no signs of slowing materially, investors have remained sanguine.

New York Federal Reserve President John Williams said on Thursday the U.S. economy was displaying "remarkable ​resilience".

"It's clearly evident in the PMI punch that we got yesterday which really showed capacity constraints with work backlogs going up and employment rising rapidly, fastest in five years, or four years. So this is putting pressure on prices and showing that the economy ‌is growing," Hank Calenti, global markets strategist at SMBC EMEA, said.

U.S. Treasury Secretary Scott Bessent has taken extraordinary measures to contain rising borrowing costs, including intervening to buy the yen ‌to avoid officials in Tokyo selling Treasuries to do so, or expanding buybacks of 20- and 30-year debt, but to little avail.

The ⁠U.S. already boasts some of the highest yields ‌among the Group of Seven richest ​nations.

"Treasuries are competing with the rest of the market to be purchased and so you know the question is how much higher could it go?," Calenti said.

(Additional reporting by Harry Robertson; Editing by ‌Dhara Ranasinghe)

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