A number of influential figures on Wall Street are suggesting that the recent surge in longer-dated Treasury yields may have reached its peak. Yields on the 10-year Treasury note temporarily crossed the 5% threshold earlier this week, marking their highest level since 2007.
Analysts from UBS Global Wealth Management, which manages a substantial $3.1 trillion, expressed their belief on Tuesday that Treasury yields are unlikely to climb any higher. Their perspective aligns with a growing consensus among investors who anticipate that the sell-off in U.S. government bonds is drawing to a close.
It’s important to note that bond yields move inversely to bond prices. UBS strategists conveyed, “From our current vantage point, we believe we are now approaching the pinnacle of yields,” while emphasizing their preference for “high-quality bonds within the 1–10 year maturity range.”
Noteworthy figures who anticipate a peak in yields include billionaire investor Bill Ackman, who recently disclosed that his hedge fund, Pershing Square Capital Management, has reversed its position against 30-year Treasuries. Vanguard, the world’s second-largest asset manager, has also expressed optimism about long-term Treasuries after what they termed a “challenging summer” for bond investors.
The sharp ascent in Treasury yields coincides with data indicating the resilience of the U.S. economy in the face of the Federal Reserve’s aggressive campaign of raising interest rates. Federal Reserve Chair Jerome Powell remarked last week that the central bank might need to maintain elevated rates to steer inflation back toward its 2% target rate.
The upcoming Federal Reserve policy meeting is scheduled for October 31-November 1.
Numerous investors have found themselves on the wrong side of the Treasury sell-off this year, especially given the widespread expectations of a looming recession earlier in the year. Treasuries are set to register an unprecedented third consecutive annual loss, while the 10-year benchmark yield has surged by approximately 155 basis points from its yearly lows. Currently, the yield stands at 4.83%, having retraced from its peak of 5.01% earlier this week.
However, certain investors anticipate that the Federal Reserve’s total increase of 525 basis points in interest rates will eventually decelerate the economy, ultimately bringing an end to the central bank’s rate hikes. According to UBS strategists, higher rates “will exert downward pressure on growth and inflation over the next six to twelve months,” potentially allowing yields to decline.
Bill Ackman of Pershing Square Capital commented, “The economy is decelerating more rapidly than recent data suggests,” in a post he made on Monday via the messaging platform X, formerly known as Twitter.
The surge in yields has had a notable impact on stocks and has reverberated across various other markets, including real estate. The S&P 500 has experienced an approximately 8% drop from its peak in late July, although it remains up by approximately 10% year-to-date.
Featured Image: Freepik @ frimufilms
