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Longer dated U.S. Treasury yields surged Tuesday, extending a powerful climb to multi year highs as investors remained preoccupied with inflation and central bank monetary policy. The dramatic moves pushed a major corner of the bond market to levels not seen in decades.

The 30 year Treasury bond yield rose more than 2 basis points to 5.585%. Earlier in the session, it moved just above 5.6%, reaching its highest level since June 2002, when the long dated bond yield touched 5.644%.

The 30 year yield typically reacts to geopolitical developments, making its latest jump especially notable amid the continuing conflict in the Middle East. Its advance also reflected broader concerns surrounding inflation, fiscal deficits and the volume of Treasury supply entering the market.

The 10 year U.S. Treasury note yield traded about 1 basis point higher at 5.253%. That yield is the key benchmark for mortgage borrowing, auto loans and credit card debt.

While longer dated yields climbed, the 2 year Treasury note moved in the opposite direction. Its yield fell more than 3 basis points to 4.891%, creating a sharp contrast across different portions of the Treasury market.

The 2 year yield tends to track expectations surrounding short term Federal Reserve interest rate decisions. Treasury yields and prices move in opposite directions, while a single basis point is equal to 0.01%.

Investors are watching both inflation and Washington’s fiscal position, according to JoAnne Bianco, senior investment strategist at BondBloxx Investment Management. Those concerns are shaping views about the additional compensation investors may demand to hold longer dated government debt.

“Investors remain very focused on inflation and they’re more worried about the fiscal deficits here in the U.S... [as well as] the amount of Treasury supply,” Bianco told CNBC. “All of those things make them think there needs to be more term premium.”

The spike in borrowing costs has carried Treasury yields to multi year highs. It has unfolded while the U.S. and Iran held separate talks with mediators aimed at resolving the ongoing conflict in the Middle East, according to a report by Al Jazeera.

The conflict has continued for seven months and remains a factor weighing on energy prices. Those energy pressures are fueling investor expectations that the Federal Reserve could raise interest rates again to confront runaway price increases.

Rising government debt has exacerbated those price increases, according to the report. That combination has kept inflation, monetary policy and Treasury supply firmly at the center of investors’ calculations as bond yields push higher.

Traders are now assigning a greater than 72% probability to another Federal Reserve rate increase at the central bank’s next meeting in October. That estimate comes from the CME FedWatch tool, which tracks market expectations for interest rate decisions.

The shift in expectations follows action earlier this month by the Federal Open Market Committee. The committee voted 12 to 0 to increase its main interest rate by 25 basis points.

Tuesday’s market action showed a clear divide between maturities, with the 30 year and 10 year yields rising while the 2 year yield declined. Even so, the defining move remained the 30 year yield’s climb above 5.6% during the session.

That intraday level placed the long dated bond yield near the 5.644% mark recorded in June 2002. With investors focused on inflation, fiscal deficits, Treasury supply and Federal Reserve policy, the government bond market remained under intense pressure.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.