(Bloomberg) — A surge in long-term U.S. Treasury yields is testing the resolve of bond investors around the world, who are torn between the possibility of locking rates near their highest levels in decades and the risk of a larger sell-off.
Most read from Bloomberg
With the 30-year Treasury yield around 5.13%, just shy of its highest level since 2007, a team at Goldman Sachs Group Inc. sees some emerging measures of value but urges caution. Barclays strategists warned clients that interest rates could top 5.5%, the highest level seen in 2004. The head of BlackRock’s research arm advises investors to reduce exposure to developed market government bonds, including Treasuries, and buy stocks instead.
This view suggests markets are trying to price in different outcomes, from a sustained rise in inflation amid a resilient economy to a slowdown caused by higher energy prices. It also increases pressure on incoming Federal Reserve Chairman Kevin Warsh and U.S. Treasury Secretary Scott Bessent, who are working to lower borrowing costs.
“While I’m interested in yields, I’m cautious,” said Gregory Peters, co-chief investment officer of fixed income at PGIM. He said he is underweight the 30-year Treasury note because he expects term premiums, the extra compensation investors need to hold longer-dated debt, to continue to rise. “Global bond markets are in disarray as investors lose confidence.”
Global bond yields have surged in recent weeks as rising energy prices due to the Iran war have added to inflationary pressures and forced central banks such as the Federal Reserve to consider raising interest rates. Coupled with concerns about the U.S. budget deficit and signs that the world’s largest economy remains resilient, the result is that investors have been seeking greater compensation for holding longer-maturity debt.
Traders remain wary of a resolution to the Middle East conflict, which could open the way for a sustainable bond rally. That outlook was on full display on Monday, with long-dated bonds initially selling off during Asian trading hours and yields rising to their highest levels since 2023. That trend later reversed amid speculation of a breakthrough in Iran’s talks with the United States, opening up the Strait of Hormuz and global energy flows – although subsequent reports dashed that optimism.