The 20-year Treasury bond breached the 5% yield mark for the first time since 2023, signaling a potential shift in the $28 trillion Treasury market as investors grapple with inflationary concerns, robust growth, and the uncertainty of President-elect Donald Trump’s policies. The 30-year yield also rose to 4.96%, while the 10-year yield climbed as much as four basis points to nearly 4.73%, its highest level since November 2023.
The selloff in the Treasury market has been driven by concerns that Trump’s policies will lead to wider deficits and rekindle price pressures, following a resilient US economy and the Federal Reserve’s interest-rate cutting cycle. As a result, bond investors are now weighing the possibility that the benchmark 10-year yield could soon return to 5%, a level that has been breached only a handful of times over the past decade.
Firms such as Amundi SA, Citi Wealth, and ING are increasingly acknowledging a new era of higher yields, while options traders are targeting the 5% level. “Treasury yields at 5% is definitely on the cards,” said Lilian Chovin, head of asset allocation at Coutts. “There’s a risk premium, a term premium going on with the very large fiscal deficits.”
The US government is set to issue a whopping $119 billion worth of new debt this week, with a sale of 30-year bonds ahead on Friday and a sale of 10-year notes on Tuesday. The Treasury also sold three-year notes on Monday. Shifts in open interest data on US 10-year note futures indicate that traders have added to bets on higher yields every day so far this year, likely contributing to the yield’s move closer to 5%.