US Treasury Selling Pressure Persists as Inflation Risks Rise
Concerns over energy supplies are increasing in several regions as geopolitical tensions in the Middle East and risks surrounding the Russia-Ukraine conflict intensify. Attacks targeting energy infrastructure are adding to inflationary pressures by raising uncertainty over fuel supplies.
Higher oil prices are also strengthening expectations that central banks around the world could move toward faster monetary tightening.
At the same time, continued investment in artificial intelligence is expected to support economic growth through productivity gains. However, uncertainty surrounding the AI sector, alongside inflation that remains above desired levels, continues to contribute to volatility in bond markets.
The Federal Reserve raised its policy rate by 25 basis points in September to between 3.75% and 4%, marking its first increase since 2023.
Hawkish measures by the Federal Reserve, European Central Bank and Bank of Japan have failed to fully ease inflation concerns, encouraging investors to seek higher real interest rates.
The yield on the benchmark 10-year US Treasury reached 5.3% on Tuesday, its highest level since 2007, before easing to 5.24% on Wednesday. The resilience of the US economy and continuing inflation pressures have strengthened expectations for additional Federal Reserve rate increases.
The two-year Treasury yield climbed more than 60 basis points in March to reach 5%. It touched 4.97% on Tuesday, its highest level since May 2024, before settling at 4.9% on Wednesday.
Rising Treasury yields have broader implications because they serve as a reference point for global borrowing costs. Analysts warn that higher yields can increase financing expenses across markets, affecting everything from corporate borrowing to household mortgages.
Sant Manukyan, deputy general manager at IS Investment, said artificial intelligence has contributed to stronger real economic growth while also changing the dynamics of bond markets.
Manukyan said the Atlanta Federal Reserve expects economic growth of around 5% in the third quarter, which would represent nominal growth of roughly 7% after accounting for inflation.
“We’re seeing shifts in portfolios due to heavy long-term borrowing of AI companies as investors are opting to buy fewer US Treasuries and opt for the corporate bonds of these firms that are heavily indebted over the long term,” he said. “We’re also seeing that inflation expectations are not as dominant a factor in the selling pressure on the bond market as is often suggested.”
He said weakening inflation expectations had contributed to higher Treasury yields to some extent, while concerns surrounding US debt dynamics remain relevant.
Manukyan added that the increase in yields reflected a wider global shift in investment patterns, with international investors moving away from assets traditionally viewed as safe havens. He pointed to the yields on 10-year French government bonds, which recently moved above Italian bond yields for the first time in a prolonged period, as another indication of this broader market adjustment.
Legal Disclaimer:
EIN Presswire provides this news content "as is" without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author above.
