U.S. Treasury bonds have continued their downward trajectory on Monday, with the 10-year and 30-year yields reaching new multi-year peaks. The rise is largely attributed to expectations that the Federal Reserve will uphold high interest rates and the issuance of new bonds will continue to increase as the federal government wrestles with growing deficits.
The 10-year yield rose by up to 10 basis points, hitting 4.53%, a level not seen since October 2007. Simultaneously, the 30-year yield increased by up to 12 basis points to reach 4.64%, its highest point since April 2011.
Last week, the Federal Reserve hinted at a possible rate hike later this year and curtailed expectations for rate cuts in 2024. This suggests a plan to uphold a stringent monetary policy well into next year with the aim of controlling inflation.
The recent bond selloff has primarily affected longer-term bonds, while shorter-term securities have seen smaller yield increases. This has resulted in a decrease in the degree of inversion in the yield curve; currently, 10-year yields are approximately 60 basis points below two-year ones, marking the smallest difference since May.
In tandem with the long-end selloff, there has been an increase in yields on Treasuries offering inflation protection. This indicates that concerns over surging consumer prices are being replaced by worries about rising Treasury debt sales as the Fed continues to withdraw from the market by reducing its debt holdings. The inflation-adjusted or real 10-year yield increased by up to 9 basis points, reaching 2.14%, its highest since March 2009.
There is potential for a significant selloff on 10 to 30-year bonds, possibly up to an additional 50 to 75 basis points before year-end. This prediction is specifically related to inflation-protected securities.
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