Pimco has told the Financial Times that U.S. 10-year Treasury yields are at risk of reaching 6% for the first time in 26 years, pointing to soaring oil prices, inflation fears and a growing public debt load. Chief investment officer Dan Ivascyn said leveraged investors could keep selling bonds during a prolonged downturn, even as solid demand at recent auctions may limit how far yields can rise.
U.S. 10-year Treasury yields are at risk of reaching 6% for the first time in 26 years, Pimco's chief investment officer told the Financial Times, as surging oil prices, inflation worries and a large public debt load unsettle bond markets. Dan Ivascyn said another jump in the benchmark yield, which last stood at 5.225%, is feasible, and warned that hedge funds and other leveraged investors could keep dumping bonds during a protracted selloff.
Yields climb on oil and AI-debt fears
Treasury yields are now trading at levels not seen in more than two decades. A spike in energy prices tied to the ongoing Iran war, along with growing unease over the sustainability of massive borrowing-fueled spending on artificial intelligence infrastructure, has stoked inflation fears. That pressure has pushed yields higher, since they tend to move inversely to bond prices, and inflation can dent the appeal of fixed-income instruments.
Ivascyn told the FT that some of the recent activity reflects negative technical conditions and stop-out selling from leveraged platform hedge funds and other leveraged investors. He added that even higher yields could also weigh on riskier assets such as corporate bonds and stocks.
Strain spreads to corporate credit
The borrowing costs of bonds issued by the lowest-rated companies have climbed to their highest level since 2020, as investors demand more compensation for holding the debt, the FT reported. Ivascyn said problems could also arise in commercial real estate, telling the FT the sector was beset by "fragile capital structures" and weak fundamentals.
A possible ceiling on how high yields can go
Still, Ivascyn predicted that elevated yields may push investors to shift more of their portfolios into Treasuries, presenting a limiting factor on how high yields can go from here, according to the FT. Demand for both 10-year and 30-year Treasury auctions was solid this week, the FT reported.
Source: Investing.com
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