Bond market jitters are back — and this time, it’s not just about inflation.

Long-term Treasury yields surged to kick off the week as Moody’s US credit downgrade reignited market concerns over the country’s worsening fiscal trajectory.

On Monday, the 30-year Treasury yield (^TYX) briefly broke above the closely watched 5% threshold, the highest level since 2023, before retreating to around 4.94% as the bond market ultimately shrugged off the downgrade. But the pullback didn't last.

Yields ticked higher again Tuesday, and by Wednesday the 30-year climbed back above the closely watched 5% mark. In afternoon trading, a weak Treasury auction helped send the 30-year yield up about 10 basis points to around 5.1%. The 10-year yield (^TNX) traded near 4.6%, the highest since February.

Since bond prices move inversely to yields, rising yields indicate investors are selling bonds. This behavior runs counter to the typical flight-to-safety response during market turmoil and has fueled worries of a broader "sell America" trade.

Wall Street analysts say the volatility reflects a shift in investor sentiment as recent optimism around trade developments gives way to renewed concern over the nation’s ballooning debt.

And while markets initially shrugged off the credit downgrade, analysts caution the bond market isn’t out of the woods, pointing to rising fiscal uncertainty and stubborn inflation as key factors likely to keep long-term yields volatile in the short run.

Read more: How to protect your savings against inflation

Citi analysts said Monday that the US "fiscal space" is narrowing due to reduced tariff revenues, meaning the government has less leeway to increase spending without worsening its debt outlook. At the same time, the potential for major fiscal expenditure is growing under President Trump’s proposed "big, beautiful" tax bill.

"We have expected a narrative shift could take place from positive tariff news to negative budget/fiscal issues, which can see another round of 'sell the US': higher back-end yields [or long-term interest rates], lower risk assets, and lower US dollar," Citi analyst Daniel Tobon wrote in a note to clients on Monday.

He warned that a sustained move above the 5% level on the 30-year Treasury yield could trigger a broader repricing of fiscal risk, with ripple effects for the dollar and global risk assets.

Read more: What are bonds, and how do you invest in them?

Trump’s tax proposal, still in its early stages in Congress, calls for sweeping cuts to individual and corporate tax rates, which would raise the nation's debt ceiling by $4 trillion. Republican leaders are aiming for a vote in the House of Representatives before Memorial Day.