US Long Bond Yields Near Highest Level Since 2023
(Bloomberg) — Yields on 30-year US Treasuries hovered near the highest levels in almost three years as investors tried to balance their worries over inflation with optimism that the US and Iran will eventually make progress toward a deal to end hostilities.
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In a volatile start to the week, yields on the long bond climbed four basis points to 5.16% during Asian hours, the highest since 2023, before ending the session within striking distance of Friday’s close. Bond yields moved with oil prices, sliding late in the US trading session after President Donald Trump called off a planned strike against Iran on Tuesday.
The back-and-forth moves show the market is still on tenterhooks for a resolution to the conflict, which has driven energy prices and government borrowing costs higher. Until then, long bonds remain especially vulnerable due to their sensitivity to inflation and fiscal concerns.
There is “no anchor above 5%,” said Guneet Dhingra, head of US rates strategy at BNP Paribas, who is recommending clients target a 5.25% to 5.5% trading range in 30-year Treasuries. “Holders of long-end Treasuries are increasingly more price-sensitive than before.”
The concern driving the recent selloff is that a surge in energy prices emanating from the closure of the Strait of Hormuz will exacerbate inflation and compel central banks — including the Federal Reserve — to raise interest rates. Add in worries over US budget deficits and signs that the economy remains resilient, and the result is that investors have been seeking greater compensation to own longer-dated debt.
Iran’s semi-official Tasnim news agency said earlier the US had offered to lift sanctions on the sale of Iranian oil until a final deal was reached, as part of a new draft proposal. An Axios report followed that the White House viewed Iran’s latest offer as insufficient. As trading neared its end, Trump revealed on social media that he wouldn’t strike Iran on Tuesday at the request of several Middle Eastern nations because “serious negotiations are now taking place” on reaching a deal to end the conflict.
“As we see yields creep higher, it’s very much a reflection of this protracted conflict — and time is not on our side as it relates to this, clearly,” Amanda Agati, PNC Asset Management Group’s chief investment officer, said on Bloomberg Radio.
The market ructions have also gate-crashed talks being held this week in Paris by Group of Seven finance chiefs. European Central Bank chief Christine Lagarde, questioned on the bond selloff as she arrived at the G-7, said that “it’s always my job” to think about such things.
For policymakers, faster inflation will make it harder for the central bank to lower interest rates and add pressure on incoming Fed Chair Kevin Warsh. Whereas traders were betting on two quarter-point cuts this year before the war, interest-rate swaps now point to a hike in March 2027 as a virtual certainty to combat inflation.
Ed Yardeni, president and chief investment strategist at Yardeni Research, said the Fed needs to drop its easing bias at its June meeting, adding that it is “no longer” appropriate in the current market environment. Later in the week, the Fed is due to release its April meeting minutes, which will give investors clues about the central bank’s thinking.
What Bloomberg Strategists say…
“The global trend for higher real yields is certainly a kick in the shins for those (including many still on the FOMC!) who think that the long-run equilibrium policy interest rate hasn’t really changed in the past few years. That’s going to make for an interesting few months, to say the least.”
— Cameron Crise, Macro Strategist, Markets Live
For the full analysis, click here.
Yields, meantime, have risen around a half-point or more from where they stood at the end of February. The two-year rose as high as 4.1%, marking a level unseen since February 2025, before falling back to 4.07%. The 10-year rose as high as 4.63%.
Yields on 30-year Treasury Inflation Protected Securities rose to the highest since April 2025. The TIPS yields have increased about 40 basis points since the Iran conflict started in late February, contributing to most of the jump of the 30-year nominal yields during the period.
“In order for rates to come off of the highs and return to previous ranges, we think that a catalyst, specifically a catalyst that drives oil prices lower, is needed to bring rates back into the ranges they were trading at the last couple of months,” said Molly Brooks, US interest-rate strategist at TD Securities. “Any news that can pressure oil prices lower should lead to rallies in rates, but a more certain end to negotiations would lead to the market being able to sustain the move.”
–With assistance from Matthew Burgess, Carter Johnson and Ye Xie.
(Corrects spelling of Strait of Hormuz in fifth paragraph)
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