(Bloomberg) -- A surge in longer-maturity US Treasury yields is testing the resolve of global bond investors torn between the possibility of locking in the rates near to the highest levels in decades and the risk of an even greater selloff.
With Treasury 30-year yields a whisker away from the highest since 2007, a team at Goldman Sachs Group Inc. sees some emerging measures of value but urges caution.
Barclays Plc and Citigroup Inc. strategists are warning clients they may breach 5.5%, levels last seen in 2004. The head of BlackRock’s research unit is recommending investors reduce their exposure to developed-market government bonds — including Treasuries — in favor of equities.
Such views are an indication of a market trying to price diverging outcomes, ranging from the persistent reemergence of inflation amid a resilient economy to a slowdown driven by higher energy prices. It also increases the pressure on incoming Federal Reserve Chair Kevin Warsh and US Treasury Secretary Scott Bessent, who has committed to bringing down borrowing costs.
Treasury 30-year yields were trading 2 basis points higher at 5.14% by 8am ET Tuesday and 10-year yields were around 4.61%.
“While I am attracted to the yields, I am cautious,” said Gregory Peters, co-chief investment officer at PGIM Credit. He said he’s underweight 30-year Treasuries based on his expectation that the term premium — the extra compensation investors demand to hold longer-dated debt — will keep rising. “The global bond market is in disarray as investors are losing confidence.”
Wall Street dealers are flagging the prospect of higher longer dated Treasury yields as inflation concerns ripple across markets.
Citigroup’s Jim McCormick, said the market focus is likely to shift to a test of 5.5%, a level last registered in June 2004. A Bank of America survey of fund managers shows 62% think a big move in yields over the next year will drive 30-year government borrowing costs above 6%. The long bond last traded above that threshold in June 2000, when the Federal Reserve’s policy rate sat at 6.5%.
Global bond yields have surged in recent weeks as a jump in energy prices caused by the Iran war adds to inflationary pressures and compels central banks such as the Fed to consider raising interest rates. Add in worries over US budget deficits and signs that the world’s largest economy remains resilient, and the result is that investors have been seeking greater compensation to own longer-maturity debt.
Traders remain on tenterhooks for a resolution to the Middle East conflict, which may yet open a path to a sustainable bond rally. That prospect was on full show on Monday, when long bonds initially sold off during Asian hours to send yields to the highest since 2023. The move later reversed on speculation of a breakthrough in Iran-US negotiations to open up the Strait of Hormuz and with it global energy flows — though subsequent reports later dashed that optimism.
Then, toward the end of the New York session, US President Donald Trump created a fresh bid for fixed income by saying he’d called off attacks on Iran scheduled for Tuesday as “serious negotiations” were now taking place. Even so, the moves were contained, with investors wary of another false dawn after several rounds of US-Iran talks failed to produce a sustainable end to the conflict.
“Value arguments are very fragile right now,” said John Sidawi, a senior portfolio manager at Federated Hermes. It’s predicated on how things develop in the Middle East and if there’s an escalation, “you throw the value arguments out,” he said.
Fiscal Deterioration
Should yields continue to grind higher, one concern is that long-end rates will become untethered as the market adjusts to a new trading range. While some traders pointed to 4.5% in the 10-year note, and 5% in the 30-year bond as areas that would draw demand from investors seeking to lock in lofty yields, the latest selloff has seen the market push through both.
“Yields might be at the highs of the year, but that by itself isn’t an argument in favor of duration,” said Ajay Rajadhyaksha, global chairman of research at Barclays, which has advised clients to stay away from long bonds. “The forces driving the selloff – fiscal deterioration, defense spending, sticky inflation, central bank paralysis – are not resolving in the next week.”
The tension reflects what Goldman strategists term an “uneasy introduction of value.” While by several metrics longer-dated Treasuries are starting to look attractive, things may easily get worse before they get better.
For the team led by George Cole, investors seeking to take a bullish stance should consider structures which limit the downside if rates continue to rise.
“We would look either for deeper selloffs that more durably challenge the risk asset trend, or credible relief and a return of energy flows as catalysts to add to long duration exposure,” the strategists said.
By Greg Ritchie and Michael MacKenzie
With assistance from Matthew Burgess, Masaki Kondo and Georgia Hall
May 19, 2026
