>US benchmark borrowing costs risk hitting 6 per cent for the first time in 26 years as fears over high oil prices, inflation and America’s towering public debt roil the world’s most important bond market, Pimco has warned.
>Dan Ivascyn, chief investment officer at bond giant Pimco, said that a further sharp rise in 10-year Treasury yields — from the current level of 5.29 per cent — is “feasible” as investors like hedge funds are forced to ditch their losing bets on bonds following weeks of heavy selling in the $32tn market.
>“It is certainly possible, even from a short-term trading perspective, given that some of the activity we’ve seen in the last couple of weeks is tied to some negative technicals, some stop-out activity from the platform hedge funds and other levered investors. You can certainly get there,” Ivascyn told the FT.
>Ivascyn’s remarks echo those of investors who have warned in recent weeks that [a “vicious loop”](https://www.ft.com/content/39de7709-7b5b-42f6-ad90-df50f1308ea2?syn-25a6b1a6=1) is taking hold in the Treasury market as waves of selling bring yields to levels that prompt other market participants such as real estate investment trusts to sell bonds.
>US 10-year yields, a benchmark for trillions of dollars in assets globally, are already trading at levels last seen at the turn of the millennium as investors worry about the inflation fuelled by Donald Trump’s Iran war, a vast borrowing binge by AI companies and expectations for strong economic growth. Inflation is toxic for bonds, which provide investors with fixed revenue streams.
>The rise in yields has heaped pressure on American households just weeks ahead of critical midterm elections that will decide which party controls Congress. Data on Thursday showed that US mortgage rates had [hit their highest level since 2023](https://www.ft.com/content/04d6ae65-5d5f-4ed6-9c15-16aa0f4d0713?syn-25a6b1a6=1), with the 30-year fixed rate averaging 7.4 per cent as of October 8, up 0.12 percentage points from the prior week.
>Ivascyn said that a further rise in Treasury yields could also deal a blow to riskier assets such as stocks and corporate bonds.
>If 10-year Treasury yields rise to 5.5 per cent or above, “you’re going to see some decent weakness in risk markets, both credit and equity”, he said.
>While US share indices are near record highs, there are already signs that high yields are weighing on some US companies. Borrowing costs on the bonds of companies with the lowest credit ratings hit their highest level since May 2020 this month at 17 per cent, driven by rising Treasury yields and by investors demanding more compensation for lending to such businesses.
>In addition to stress in risky segments of public markets, Ivascyn predicted that higher Treasury yields would spark problems “in slow motion” for parts of private markets, including commercial real estate, where there are “a lot of still fragile capital structures, fundamental weakness”.
>Ivascyn noted that elevated yields would eventually prompt investors to shift more of their portfolios into Treasuries as they seek to lock in high returns. He said that would present a “limiting factor on how high yields can go from here”.
>There were some signs of this trend during Treasury auctions this week, with both 10-and-30 year deals each drawing robust investor demand.
>Beyond the US, Ivascyn highlighted the appeal of overseas debt markets. While Pimco is “less concerned than some [about] the US’s ability to maintain these deficits for a while”, he said, “what’s great is you don’t have to just own US debt” — pointing to the examples of Australian “very high quality credit”, and the UK’s yield premium to the US despite “its own challenges”.
>Other markets, including Canada and Germany — especially in US dollar terms — offered “very attractive yields and a better starting fiscal position”, he added.
When yields hit 6.6%, Joe Rogan takes an interest and the political/monetary agenda will be carefully decided over three hours with a whatever comedian, zooloagist or gorilla he happens to have on.
6 Comments
>US benchmark borrowing costs risk hitting 6 per cent for the first time in 26 years as fears over high oil prices, inflation and America’s towering public debt roil the world’s most important bond market, Pimco has warned.
>Dan Ivascyn, chief investment officer at bond giant Pimco, said that a further sharp rise in 10-year Treasury yields — from the current level of 5.29 per cent — is “feasible” as investors like hedge funds are forced to ditch their losing bets on bonds following weeks of heavy selling in the $32tn market.
>“It is certainly possible, even from a short-term trading perspective, given that some of the activity we’ve seen in the last couple of weeks is tied to some negative technicals, some stop-out activity from the platform hedge funds and other levered investors. You can certainly get there,” Ivascyn told the FT.
>Ivascyn’s remarks echo those of investors who have warned in recent weeks that [a “vicious loop”](https://www.ft.com/content/39de7709-7b5b-42f6-ad90-df50f1308ea2?syn-25a6b1a6=1) is taking hold in the Treasury market as waves of selling bring yields to levels that prompt other market participants such as real estate investment trusts to sell bonds.
>US 10-year yields, a benchmark for trillions of dollars in assets globally, are already trading at levels last seen at the turn of the millennium as investors worry about the inflation fuelled by Donald Trump’s Iran war, a vast borrowing binge by AI companies and expectations for strong economic growth. Inflation is toxic for bonds, which provide investors with fixed revenue streams.
>The rise in yields has heaped pressure on American households just weeks ahead of critical midterm elections that will decide which party controls Congress. Data on Thursday showed that US mortgage rates had [hit their highest level since 2023](https://www.ft.com/content/04d6ae65-5d5f-4ed6-9c15-16aa0f4d0713?syn-25a6b1a6=1), with the 30-year fixed rate averaging 7.4 per cent as of October 8, up 0.12 percentage points from the prior week.
>Ivascyn said that a further rise in Treasury yields could also deal a blow to riskier assets such as stocks and corporate bonds.
>If 10-year Treasury yields rise to 5.5 per cent or above, “you’re going to see some decent weakness in risk markets, both credit and equity”, he said.
>While US share indices are near record highs, there are already signs that high yields are weighing on some US companies. Borrowing costs on the bonds of companies with the lowest credit ratings hit their highest level since May 2020 this month at 17 per cent, driven by rising Treasury yields and by investors demanding more compensation for lending to such businesses.
>In addition to stress in risky segments of public markets, Ivascyn predicted that higher Treasury yields would spark problems “in slow motion” for parts of private markets, including commercial real estate, where there are “a lot of still fragile capital structures, fundamental weakness”.
>Ivascyn noted that elevated yields would eventually prompt investors to shift more of their portfolios into Treasuries as they seek to lock in high returns. He said that would present a “limiting factor on how high yields can go from here”.
>There were some signs of this trend during Treasury auctions this week, with both 10-and-30 year deals each drawing robust investor demand.
>Beyond the US, Ivascyn highlighted the appeal of overseas debt markets. While Pimco is “less concerned than some [about] the US’s ability to maintain these deficits for a while”, he said, “what’s great is you don’t have to just own US debt” — pointing to the examples of Australian “very high quality credit”, and the UK’s yield premium to the US despite “its own challenges”.
>Other markets, including Canada and Germany — especially in US dollar terms — offered “very attractive yields and a better starting fiscal position”, he added.
https://preview.redd.it/vacu3xsehhuh1.png?width=917&format=png&auto=webp&s=294d3be05c33b086e1e1adaa00b149adefb52b7c
i’ll take the over
The Republican Effect
It’s stagnated during the last week.
Don’t worry.
When yields hit 6.6%, Joe Rogan takes an interest and the political/monetary agenda will be carefully decided over three hours with a whatever comedian, zooloagist or gorilla he happens to have on.
Maybe they’ll decide on so.ething good.