US Yields Flirting With 2007 Highs Entice and Divide Investors
(Bloomberg) — The rise in long-term U.S. Treasury yields is testing the resolve of global bond investors torn between the possibility of interest rates pegging near decades-highs and the risk of an even bigger selloff.
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With 30-year Treasury yields just shy of their highest level since 2007, a team at Goldman Sachs Group Inc. sees some new metrics of value but urges caution. Barclays Plc strategists are warning clients that they could surpass the 5.5% level last seen in 2004. BlackRock’s head of research advises investors to reduce their exposure to developed-market government bonds, including Treasuries, in favor of stocks.
Such views are indicative of a market trying to price disparate outcomes, ranging from a persistent resurgence of inflation in a resilient economy to a slowdown caused by higher energy prices. It also increases pressure on Federal Reserve Chairman Kevin Warsh and US Treasury Secretary Scott Bessent, who have pledged to lower borrowing costs.
Treasury 30-year yields were trading at 5.14%, up two basis points, at 07:00 UTC on Tuesday, while 10-year yields were at 4.6%.
“While I am tempted by yields, I remain cautious,” said Gregory Peters, co-chief investment officer at PGIM Fixed Income. He said he underweights 30-year Treasuries based on expectations that the term premium (the extra compensation investors demand for holding longer-term debt) will continue to rise. “The global bond market is in turmoil as investors lose confidence.”
Global bond yields have risen in recent weeks as a rise in energy prices caused by the Iran war has increased inflationary pressures and forced central banks such as the Fed to raise interest rates. Combined with concerns about U.S. budget deficits and signs that the world’s largest economy remains resilient, investors are seeking more compensation for holding longer-term debt.
Investors remain nervous for a resolution to the Middle East conflict, which could pave the way for a sustained rally in bonds. That expectation was on full display on Monday, when long-term bonds sold off during Asian hours, pushing yields to their highest level since 2023. The move was later reversed amid speculation that Iran-US negotiations would make a breakthrough in opening the Strait of Hormuz and with it global energy flows; but later reports dashed this optimism.
