30-year US Treasury yield hits highest level since 2002, sell-off may continue under seasonal pressure
On Tuesday, the US 30-year Treasury yield rose to 5.62%, reaching its highest level since 2002, while the 10-year yield briefly touched 5.29%. High oil prices intensifying inflation expectations, robust economic data supporting rate hike expectations, concerns about fiscal sustainability, and a surge in corporate bond supply have collectively driven this round of sell-off. Historical seasonality indicates that September and October are typically the weakest months for US Treasuries, and volatility risk remains high going forward.
The wave of sell-offs in the U.S. Treasury market has once again escalated, with the 30-year U.S. Treasury yield surging to its highest level in over twenty-four years.
On September 29, the 30-year Treasury yield briefly climbed to 5.62% during trading, reaching its highest point since June 2002 and marking the sixth consecutive session of increases.
The 10-year yield also moved higher, hitting a session high of 5.29%, the highest level since 2007. The 2-year yield stood at around 4.9%, remaining the only major tenor still below 5%. Bloomberg’s index shows U.S. Treasuries are down 2.6% so far this year.
Soaring oil prices, mounting inflationary pressures, robust U.S. economic data supporting rate hike expectations, and concerns over the sustainability of federal fiscal policy have all combined to drive this wave of sell-offs and its continuous spread.
Citigroup strategists described the current market as a “modest buyers’ strike,” while Yardeni Research pointed out that the unwinding of yen-based carry trades has also contributed to the selloff. Bloomberg’s index indicates U.S. Treasuries have fallen 2.6% so far this year.
Multiple Pressures Intertwined, Sell-Offs Deepen
The core driver of this round of Treasury sell-offs originates from a rekindling of inflation expectations.
Global oil benchmark Brent crude has remained above $100 per barrel for most of September. Elevated energy costs are being transmitted to the world economy, prompting investors to bet that the Federal Reserve and other major central banks will further raise interest rates.
Meanwhile, the surge in corporate bond supply is also weighing on long-end yields.
According to Bloomberg, Paramount Global launched its long-anticipated investment grade bond issuance. This offering is the largest component of its $52 billion joint debt financing program for the acquisition of Warner Bros. Discovery, with about $32 billion expected to be raised from the bond market.
SMBC rate strategist Monty Gandhi stated:
This is the fifth-largest investment grade deal on record, and part of the move higher in long-end yields may be related to this.
Concerns over the fiscal outlook are also suppressing market sentiment. The total U.S. Treasury debt surpassed $40 trillion last month, with government borrowing continuing to expand at a historic pace.
Kristina Hooper, Chief Market Strategist at Man Group, believes that rising long-end yields reflect “growing concerns over fiscal sustainability,” along with inflationary pressures induced by elevated oil prices.
She also noted that considering the U.S. fiscal trajectory and the “unpredictability” of Washington’s foreign policy, the attractiveness of Treasuries—especially for overseas buyers—is set to decline.
Yardeni Research states that unwinding of yen-based carry trades is also propelling the ongoing selloff. Edward Yardeni, President of Yardeni Research, believes that the rise in yields “may be the revenge of the bond vigilantes.”
Seasonal Factors Add Fuel to the Fire
Historical trends also pose challenges to the current market.
Bloomberg data shows that over the past ten years, the median return of U.S. Treasuries in September is -0.9%, and -0.7% in October—the worst two months of the year.
TD Securities strategist Prashant Newnaha commented:
The performance of the rates market in September has been disastrous, and this painful trade may persist. Unless the Middle East situation is resolved, the fixed income market faces further “de-risking” risks, and this trend could spill over into equities.
Masahiko Loo, Senior Fixed Income Strategist at State Street Global Advisors, pointed out that Treasuries typically face a “seasonal test” in October due to increased bond supply and investors’ return from the summer lull.
He noted that as we head into Thanksgiving, Treasury supply will ramp up again, credit issuance is huge, and AI-related capital expenditure demand remains strong. Masahiko Loo stressed:
Competition for capital remains fierce, and the risk of further volatility in Treasuries remains elevated.
Risk Assets Show Relative Resilience as Some Investors Seek Opportunities
Despite persistent pressure in the bond market, risk assets like equities and credit are currently displaying notable resilience.
The S&P 500 Index closed down 0.2% on Tuesday, remaining less than 2% below its August peak; the Nasdaq 100 Index climbed 0.2%. Laura Cooper, Head of Macro Credit at Nuveen, noted:
Strong growth driven in part by AI investments has helped keep risk assets stable.
However, Cooper remains cautious on long-end Treasuries. She stated she has “reduced” her underweight position but has not yet started “buying on dips,” citing “ongoing upward risks to near-term inflation and persistently high energy prices.”
A few market participants are choosing to position contrary to the trend. Wall Street veteran Jim Bianco has turned bullish on Treasuries for the first time in six years, while long-term bond investor Chris Iggo stated that after four difficult years, bonds may be set for a rebound.
Mark Dowding, Chief Investment Officer of RBC BlueBay Asset Management, believes the current wave of global bond selloffs may be overdone.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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