US long-dated borrowing costs hit their highest in over 20 years on Thursday, extending a selloff as investors demand greater compensation to hold government bonds given strong economic growth, high levels of debt and rising energy costs that have further fanned inflation fears.

Bond markets have been under pressure for months, sending yields to multi-decade highs as the Iran war raised energy prices and investors fret about government spending. Yields rise as bond prices fall.

Investors of late have grown more concerned as the selloff in the US, the world’s deepest and most crucial government bond market, has picked up pace. The yield on the 30-year Treasury climbed to just over 5.45%, highest since 2004, and the benchmark US 10-year yield now sits at 5.158%.

So far, investors have absorbed the rise in yields given the resilience of underlying economic growth, booming corporate profits and the avalanche of spending, led by the AI boom. The tech-heavy Nasdaq closed at a record high on Tuesday.

But borrowing costs may be reaching a point at which global financial markets could start to hit turbulence and consumers feel the squeeze. US 30-year mortgage rates are now a percentage point higher than before the war and, at 7%, around their highest in two years.

“Obviously the higher things go, the worse everything looks, and the more expensive US mortgages will be, for example, and the bigger the debt interest burden of the federal government,” said Daiwa Capital’s head of economic research Chris Scicluna.

The selloff accelerated on Wednesday and Thursday after business activity data pointed to strong US growth and rising inflation pressures, stoking Federal Reserve rate-hike bets.

While shorter-dated Treasury yields track expectations for interest rates, the 30-year yield reflects investors’ willingness to finance government borrowing in the years ahead.

The world’s biggest economies are grappling with higher interest payment as spending demands surge. Germany’s finance agency said on Thursday it expects federal borrowing to hit a record €525.5 billion ($598 billion) in 2026 and to rise further next year, driven largely by rising refinancing needs and growing requirements for special funds.

The yield on Germany’s benchmark 10-year Bund briefly rose above 3.5% this month, its highest level in 17 years.

Japan’s 10-year bond yield on Thursday hit its highest since 1996.

Investors Still Calm

With nominal US growth running at around 8% in the second quarter and showing no signs of slowing materially, investors have remained sanguine.

US Treasury Secretary Scott Bessent has taken extraordinary measures to try to contain rising borrowing costs, including intervening to buy the yen to avoid officials in Tokyo selling Treasuries to do so, or expanding buybacks of 20- and 30-year debt, but to little avail, as yields have continued to climb.

The US already boasts some of the highest yields among the Group of Seven richest nations.

New York Federal Reserve President John Williams said on Thursday the US economy was displaying “remarkable resilience”.

“Treasuries are competing with the rest of the market to be purchased and so you know, the question is, how much higher could it go?,” Hank Calenti, global markets strategist at SMBC EMEA, said.

(Additional reporting by Harry Robertson; Editing by Dhara Ranasinghe and David Gaffen)