Demand for longer-term U.S. debt gets weaker as one shock after another stokes fear that high inflation is here to stay

Bonds sold off sharply around the world on Friday as investors brace for persistently elevated inflation amid the ongoing energy crisis. Oil jumped after the U.S.-China summit wrapped up without any signs that Beijing will lean on ally Iran to reopen the Strait of Hormuz. That followed a series of U.S. debt auctions this past week that signaled tepid demand for longer-term Treasuries as fresh consumer and producer inflation data came in hotter than expected. On Wednesday, the Treasury Department sold $25 billion of 30-year bonds at a 5% yield for the first time since 2007. Before then, no 30-year Treasury carried an interest rate above 4.75%. It was a stark contrast from mid-February—just before the U.S.-Israeli war on Iran started—when a Treasury offering saw the highest demand ever in the history of 30-year auctions. In addition to the latest auction of so-called long bonds, sales of three- and 10-year Treasuries earlier in the week also drew less demand than expected. Skittishness among bond investors is becoming a trend. In March, auctions for two-, five- and seven-year Treasury notes all saw weak demand, forcing yields to go higher than expected. Higher yields boost interest costs, which are running at $1 trillion a year, worsening the budget deficit and adding even more to the total debt burden. The deficit is already on a troubling path this year. Last week, the Treasury Department announced it expects to borrow more than anticipated this quarter as incoming cash flow has been softer than initially projected. Meanwhile, the federal government has to issue trillions of dollars of fresh debt each year to cover the deficit, and must offer a yield that’s attractive enough to investors who see inflation eroding fixed income. Previous supply shocks were seen as one-off events that would produce temporary price surges. But there’s been a steady tempo of repeated shocks in recent years, including COVID supply-chain chaos, Russia’s invasion of Ukrain