Treasury yield surge to threaten bull run’s last resistance line

The relentless selloff in Treasuries continued Tuesday, threatening to mark a resolute end to the four-decade bull run in bonds, at least according to one key metric.

Benchmark 10-year yields rose above 2.80% to the highest since December 2018 as traders bet the Federal Reserve will ramp up the pace of tightening to curb inflation. Strategists from JPMorgan Asset Management to MUFG Securities Americas say yields may climb past 3%. The chart below shows that the long-term downtrend in 10-year Treasury yields plotted with a logarithmic scale would be breached at around 2.83%.

“This is the new reality for the bond market after a pretty good run — yields have nowhere to go but up after being artificially suppressed,” said Stephen Miller, investment consultant at GSFM, a unit of Canada’s CI Financial Corp., who sees yields testing 3.5%. “The Fed’s been slow in recognizing that inflation is coming, the market’s been slow in recognizing inflation’s truly out of the bottle and we’re all catching up now.”

A Bloomberg gauge measuring total returns in Treasuries has slumped almost 8% this year, on track for its worst annual decline since at least 1973, as rate-hike bets gather pace. Swaps traders are pricing in more than 220 basis points of U.S. rate increases for the rest of the year, signaling expectations the Fed could tighten by half a percentage point at each of the next two meetings.

The U.S. bond selloff spilled into other markets Tuesday with Australian and New Zealand yields also climbing. Japan 10-year yields also rose to 0.24%, edging closer to the central bank’s 0.25% ceiling.

U.S. consumer-price data due Tuesday may push yields up further, with economists forecasting an 8.4% annual gain in March’s index, a fresh four-decade high.

“The Fed is prioritizing risk inflation — not risk assets, not employment, and that means they’ll just let rates keep getting higher until equity markets say, ‘we can’t take it anymore’,” said Raymond Lee, chief investment officer at Torica Capital in Sydney. “Now is not the time to run a long interest-rate duration position.”