The Long Bond Just Hit Pre-2008 Financial Crisis Levels—And Even Iran Is Noticing

Chart of the Week #104

This week, the U.S. Treasury auctioned $25 billion of 30-year bonds at a yield of 5.046%.

That number doesn’t sound like much. Until you realize it’s the first time a 30-year auction has cleared above 5% since 2007.

In fact, the prints were so bad that Iran’s parliament speaker, Mohammad Ghalibaf, took to X to mock the U.S.

Source: X

As a result, here’s what the chart of the 30-year yield looks like right now.

Source: CNBC

That's 5.12% as of this morning — the highest the long end of the Treasury curve has been since the run-up to the 2008 global financial crisis.

For those not glued to bond markets, here’s why that matters. The 30-year Treasury yield is the price the U.S. government pays to borrow money for thirty years — the longest term it issues. It’s also the benchmark that anchors every other long-term interest rate in the economy: mortgages, corporate debt, pension fund discount rates. When it rises, every one of those goes up with it. Including the cost of the government’s own debt.

And the U.S. government has a lot of debt — $39 trillion of it.

Trouble is, interest expense alone is running at roughly $1 trillion a year — more than the entire military budget. Already on par with Medicare. Second only to Social Security. And every 1% increase in the average borrowing cost adds roughly $390 billion a year at this debt level.

That’s a huge problem. Because as I wrote earlier this week, the government’s own numbers project federal debt hitting $65 trillion by 2036. Not a generation. A decade.

Paying that much interest on that much debt is how governments go broke.

But the U.S. can’t actually default the normal way. Reserve-currency status, the petrodollar, the entire postwar system — not to mention the precious careers of those at the top. Too much breaks if Treasury debt isn’t money-good.

So the alternative is the one the Fed always takes: restart QE — aka the dreaded money printer. And when it does, the printing lands on an economy already running hot from supply shocks. That’s how you get the kind of inflation no one alive has seen.

Just watch what the Fed does if the 30-year keeps climbing from here.

Have a great rest of the weekend,

Lau Vegys