US 30-year yield hits 2007 highs; global bond selloff accelerates on inflation fears

Treasury yields have staged a stunning reversal in May, with the 30-year benchmark hitting 5.11%, levels unseen since May 2025 and matching 2007 crisis-era readings. The catalyst is multi-pronged: persistent oil prices above $80 per barrel due to Iran conflict, US inflationThe rate at which prices rise across an economy. data that defied expectations, and a broader repricing of Fed rate-cut probabilities. Traders who had priced in three or four cuts by year-end now expect the Fed to hold rates steady well into late 2026 or even hike if oil prices remain elevated.

The selloff is global and severe. UK gilts tumbled as Manchester Mayor Andy Burnham's potential challenge to Keir Starmer raised political instability fears. European sovereigns saw similar slides, with the ECB now facing an awkward position: tighten policy to fight inflationThe rate at which prices rise across an economy., or risk currency and credit contagion. Japanese and Australian yields also surged, creating a synchronized bond rout unseen in years. G-7 finance ministers are scheduled to discuss the selloff, signaling concern about systemic risk.

Equity markets absorbed the shock unevenly. The Russell 2000 rallied 0.7% on rotation hopes, while the Nasdaq fell 1.3% as mega-cap growth stocks repriced lower on higher discount rates. Credit spreads widened modestly, but high-yield investors showed resilience, enticed by coupons now yielding 6%+ in real terms. JPMorgan's private credit trading desk ramped activity as the $1.8 trillion private markets ecosystem felt the sting of higher hurdle rates. Copper hedge funds pushed bullish bets to five-month highs, betting inflationThe rate at which prices rise across an economy. will persist. Wall Street banks noted the irony: inflation-linked bonds, out of favor for two years, are suddenly fashionable again.

The risk is a vicious cycle: higher yields depress equity valuations, forcing redemptions in bond ETFs, which cascades into forced selling and wider spreads. RBC's Lori Calvasina warned that if yields hit 5%, valuation multiples face material pressure. SocGen's Albert Edwards, the famed bear, sees double-digit inflationThe rate at which prices rise across an economy. as a real tail risk if the Iran conflict persists. The bond market's repricing is faster than the Fed's ability to guide expectations; Kevin Warsh's first week as Fed Chair will test his credibility in stemming yield volatility.