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Dan Ivascyn flags rising oil prices, inflation risks and mounting US debt as bond yields climb to their highest levels in more than two decades, threatening stocks and corporate bonds.
The US 10-year Treasury yield could surge to 6 per cent for the first time since 2000 as rising oil prices, persistent inflation concerns and mounting government debt fuel a sell-off in global bond markets, Dan Ivascyn, group chief investment officer at bond fund manager Pimco, told the Financial Times.
The benchmark yield, a key gauge of global borrowing costs and a major influence on asset prices, was trading at around 5.29 per cent on Friday. It has climbed nearly 120 basis points this year, approaching last week’s peak of 5.34 per cent, its highest level since 2002.
Ivascyn said a further sharp increase in yields was feasible in the near term, partly because leveraged investors and hedge funds have been forced to unwind losing bond positions.
Recent market movements have been exacerbated by technical factors, including stop-loss activity among hedge funds and other leveraged investors, he told the FT.
A further rise in Treasury yields could put significant pressure on riskier assets, including equities and corporate bonds. Ivascyn said a move to 5.5 per cent or higher would likely trigger substantial weakness across credit and equity markets.
Global bond markets have faced intense selling pressure this year as higher energy costs fuel inflationary pressures and the artificial intelligence boom supports economic growth, strengthening expectations that interest rates could remain elevated for longer.
More from BusinessBond yields rise when prices fall, reflecting investors’ demand for higher returns to compensate for inflation, interest-rate uncertainty and fiscal risks.
The US 10-year Treasury yield recorded its biggest quarterly increase of the 21st century in the three months ended September, according to Reuters, underscoring the scale of the recent sell-off.
A sustained rise in US Treasury yields could tighten financial conditions worldwide by raising borrowing costs for governments, companies and households, while making bonds more attractive relative to equities and other riskier investments.
For investors, the prospect of a 6 per cent yield marks a critical risk to asset valuations, particularly if elevated energy prices and concerns over US public finances continue to push long-term borrowing costs higher.
