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The US government has sold 30-year debt at a 5 per cent yield for the first time since 2007 amid mounting signs that Donald Trump’s war in Iran has unleashed a new surge in inflation.
The Treasury department issued $25bn of new 30-year bonds on Wednesday, with the high yield at auction reaching 5.046 per cent.
Earlier in the day, yields on US debt, which move inversely to prices, rose after official data showed wholesale inflation had jumped to 6 per cent in April, its highest level since 2022.
“Financing the debt is getting much more expensive,” said Ed Al-Hussainy, a portfolio manager at Columbia Threadneedle.
The sale comes as the conflict in the Middle East drives a surge in fuel prices that has pushed up costs for businesses across the US. Inflation is corrosive to long-term debt, and concerns about the bout of higher price growth have helped drive the 30-year yield up roughly 0.4 percentage points since the start of the war.
April’s producer price index was up sharply from a 4.3 per cent year-on-year gain in March and 3.4 per cent before the war began in February, according to Wednesday’s data from the Bureau of Labor Statistics.
“Everything that you buy is going to end up on a truck somewhere — and those trucks have to run mostly on diesel. So you’re seeing the broad-based influence of energy across the economy,” said Brett Ryan at Deutsche Bank. “It’s not looking to be a fun summer for US consumers.”
Wholesale prices are often seen as a forerunner of consumer inflation, which has already risen to a three-year high of 3.8 per cent in April.
The April PPI figure was the highest since December 2022, when the US economy was reeling from the energy shock triggered by Russia’s full-scale invasion of Ukraine.
Mirroring that period, fuel prices have jumped sharply in recent weeks. The war’s closure of the Strait of Hormuz, through which a fifth of global oil supply flows, has triggered a sharp rise in crude prices.
US petrol prices have increased by more than half to $4.51 a gallon, while diesel has risen by a similar margin to $5.66, close to record levels.
The PPI figures highlight the fraught climate facing Kevin Warsh just days before the 56-year-old financier is set to take the helm at the US central bank.
Susan Collins, president of the Fed’s Boston branch, said on Wednesday that she could “envision a scenario” where the US central bank would need to raise interest rates to combat the surge in inflation.
While it was not her “baseline”, it was now possible to see an outcome “that requires some policy tightening”, said Collins, who is a member of the Federal Open Market Committee but does not hold a vote on interest rates.
“The energy shock has negatively affected my outlook for both real activity and inflation. Moreover, the shock has tilted risks to real activity somewhat further to the downside and risks to inflation further to the upside,” she said.
Markets on Wednesday were pricing in an 80 per cent chance of a rate rise by April 2027 following the inflation data, up from 56 per cent on Monday.
Economists said Wednesday’s data suggested that the war would continue to put upward pressure on prices across the economy as higher costs for industry fed through to everything from groceries to airfares. The BLS said the price of freight transportation increased 8.1 per cent in April.
Joseph Brusuelas at consultancy RSM said Wednesday’s “hot” reading showed there was “pressure in the pipeline”. “It’s going to be some time before inflation peaks.”
Core producer inflation, which strips out the effect of food, energy and trade services, was 4.4 per cent in April, up from 3.7 per cent in March.
EJ Antoni, an economist at the conservative think-tank The Heritage Foundation, said the core reading showed higher energy prices were “bleeding” into other parts of the economy.
“Even if gas and diesel prices have peaked at this point, most other prices will keep rising for months,” Antoni, who Trump tapped to run the BLS last year before withdrawing the nomination, wrote on X.
Separate data released on Wednesday by the energy department showed bigger than expected drawdowns of crude and petrol stocks from inventories last week, underlining the pressure on fuel prices, even as distillate stocks, which include diesel, rose.
