U.S. Treasury Sell-Off Eases as 30-Year Yield Eyes 1999 High

CNBC reported Tuesday that U.S. Treasury yields pulled back slightly after a punishing Monday session. The retreat offered modest relief, but the broader picture for global bond markets remains unsettled.

Yields Step Back From Monday’s Highs

The benchmark 10-year Treasury note yield slipped just over one basis point to around 4.607% in early Tuesday trading. The 30-year Treasury bond yield held near 5.143%, still close to multi-decade highs. The more Fed-sensitive 2-year note also eased, dropping roughly two basis points to 4.070%. One basis point equals 0.01%, and yields move inversely to prices.

The prior session had pushed the 10-year yield to its loftiest point in 15 months at one stage. That move rattled traders already nervous about the inflation outlook and mounting fiscal pressures across major economies.

What the Survey Numbers Say

A Bank of America global fund manager survey published Tuesday painted a striking picture. Nearly two-thirds of respondents expect the 30-year Treasury yield to eventually reach 6%. That would mark the highest level since late 1999 and would require the yield to climb roughly 86 basis points from where it currently sits. Only around one in five managers said they are positioned for a 30-year yield of 4%.

Background: Energy Costs and Deficit Pressures Drive Sentiment

The dominant fear across bond markets is a combination of surging energy prices and expanding government borrowing. Brent crude was last trading around $110.38 per barrel on Tuesday, down 1.5% on the session, while West Texas Intermediate held near $108.67.

Jefferies chief economist and strategist Mohit Kumar told CNBC that even a Middle East peace deal would not return oil to pre-war prices. He projected energy costs could still be 25-30% higher in six months. Governments subsidising household fuel bills will need to borrow more, Kumar argued, adding pressure to the long end of the yield curve.

European sovereign debt markets are similarly stressed. The 10-year UK gilt yield remained above 5%, at 5.115%, while the 30-year gilt ticked up to 5.773%. German 10-year bund yields dipped marginally to 3.147%, with 30-year bunds holding at 3.684%.

Rate Hike Bets May Be Premature

Despite the market’s current tilt toward pricing in central bank rate increases, Kumar cautioned that such expectations may be misplaced. He argued inflation is likely to rise at roughly the same pace that growth decelerates, making aggressive tightening hard to justify.

Global bond traders will now watch Federal Reserve communications closely for any signal on how policymakers plan to navigate that difficult trade-off.

Read Next: Fed Holds Rates Steady as Policymakers Watch Inflation Data