(Bloomberg) — The US bond market is finally showing signs of steadying after a two-month selloff, with investors starting to swoop in whenever yields test new peaks.
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Donald Trump’s presidential victory, stubbornly elevated inflation and a steady drumbeat of strong economic data have pushed 10-year Treasury yields up sharply since mid-September — and there’s no clear consensus of where they’re likely to go.
But after the global benchmark topped 4.5% on Nov. 15, it quickly reversed course amid a wave of large purchases and hasn’t breached that level since. Ten-year yields closed at 4.4% last week and slipped further in Asia trading Monday as traders reacted to Trump’s Treasury secretary pick, to about 4.36%.
Fund managers at Pacific Investment Management Co. said Treasury yields at well over 4% are attractive on their own. But with federal government debt also now generally moving in the opposite direction as stock prices, it has also started to take on its traditional role as a hedge against an equity market slide.
Treasuries are “a very low volatility asset with a high return,” Pimco’s Erin Browne said in a Bloomberg Television interview, adding that if the 10-year yield rose back to 5% she would “really get interested in buying more aggressively.”
The last two months mark another turbulent shift for the bond market, which has defied expectations that it would rally once the Fed started cutting interest rates. Instead, since the central bank’s first move in September, yields have pushed higher as the strong economy and Trump’s victory drove traders to recalibrate how far it would go.
Trump on Friday nominated Scott Bessent, who runs macro hedge fund Key Square Group, as the next US Treasury secretary after an extended search that included multiple high profile candidates. Bessent, seen by some in Wall Street as a ‘fiscal hawk’, will play a key role in overseeing the government’s hefty debt sales.
Bessent has questioned President Joe Biden’s administration management of federal debt financing and has criticized the US central bank for its large interest-rate cut in September. Strategists were encouraged by his markets experience and past comments on reining in spending, in early reaction to the pick.
