30 year yields - 28th August 2025

Long-dated Government bonds in the US, UK and Germany, which are hitting yields not seen for many years.

30-year Government bond yields provide a market view on long term economic prospects and, in particular, the outlook for inflation. They are influenced by central banks’ actions on short term rates only to the extent that there is a read across to inflation management and economic credibility.

In the era(s) of quantitative easing (QE) central banks did have a greater influence on long term bond yields as they were price-insensitive buyers, pushing down yields. Now that QE has morphed into QT (quantitative tightening), they are having the opposite effect, albeit only marginally as central banks have been slow to run down their large portfolios.

As the graph shows, 30-year yields have on a sharp upward trend in the US UK and Germany since the end of 2021. The same would be true for Japan, were it to be added to the graph. The move has been due to higher inflation and, increasingly, the growth of government debt.  

In the UK and US, the Government reaction has been to focus fresh borrowing at the short end of the bond market or through treasury bills. That has the benefit of keeping interest costs down – the yield gap between two-year and 30-year bonds is about 1.6% in the UK and 1.25% across the Atlantic. However, short term debt needs much more frequent refinancing, which brings with it the danger that the interest costs could be more volatile in the medium term.  

In the US, 30-year Treasury bond yields are the benchmark against which many mortgages are set – about 90% of US homes loans are 30-year fixed rate. Thus if the Federal Reserve cuts its Bank Rate, this has almost no impact on existing borrowers and potentially a similar non-effect for new borrowers. When Donald Trump says, “Once we have a majority [at the Federal Reserve], housing is going to swing, and it’s going to be great”, he seems to be ignoring that 30-year reality. Meanwhile, US mortgage rates are 6.6%, having been churning in a 6%-7% band for most of the last three years.