U.S. PCE decreased 0.1% month-over-month in June, the first negative reading since 2020—typically a positive sign that should push U.S. Treasury yields lower. Yet the market reacted in the opposite direction: the 30-year U.S. Treasury yield rose briefly to 5.27%, its highest level since 2007. The reason is simple: bond markets trade on the future, not the past. Second-quarter U.S. domestic demand remained robust, international oil prices surged about 20% in July, and for the first time, three Fed officials signaled support for a rate hike. Markets are now more concerned that inflation could reaccelerate in the coming months than focused on the fact that June’s PCE has already declined. Even more concerning is the fiscal picture. U.S. federal debt is nearing $40 trillion, with annual interest payments on Treasuries approaching $1.4 trillion. With the 30-year Treasury yield above 5%, a large portion of maturing debt will need to be refinanced at significantly higher rates, further intensifying fiscal pressure. What the market truly fears is not the $40 trillion debt itself, but $40 trillion paired with long-term interest rates above 5%. The more debt there is, the more bonds must be issued; the more bonds issued, the higher yields may rise; and the higher yields, the greater the interest expense—creating a self-reinforcing cycle. Over the coming months, what matters most is not inflation data, but the 30-year U.S. Treasury yield. Whether it can fall back below 5% may determine the next phase of valuation trends for global risk assets.