A Bloomberg Markets Pulse survey conducted this week reveals that two-thirds of 392 respondents anticipate the US 10-year Treasury yield will exceed 5% by the end of 2026. This would mark a significant milestone, as the yield has rarely reached this level since 2007. Specifically, 38% of those surveyed believe the breach will occur in the fourth quarter, while 28% expect it to happen this month or next. The poll also noted the highest number of participants in four years predicting a rise in 10-year yields in the upcoming month.
The 10-year yield stood at 4.65% on Wednesday morning in New York, after declining from an earlier high of 4.75% following a surprise announcement by the Treasury Department to increase buybacks of long-dated government debt. This move by the Treasury, which occurred after the Markets Pulse poll closed, was seen as a response to the climbing yields. The 10-year yield briefly surpassed 5% in October 2023 during an S&P 500 correction, but before that, a sustained period above 5% hasn't been seen since 2007. The 30-year yield recently traded at 5.20%, though nearly 60% of poll contributors doubted it would reach 6% this year.
The increasing long-term borrowing costs pose a threat to the broader economy by potentially raising the cost of mortgages, corporate debt, and consumer loans. Several factors are contributing to the slump in US debt, including persistent inflation, doubts about the Federal Reserve's strategy, and the national debt approaching $40 trillion. Additionally, a surge in hyperscaler debt to fund AI infrastructure, estimated at roughly $200 billion this year, is impacting demand for Treasuries, equating to about 25% of the US Treasury's net issuance of notes and bonds to private investors, a five-fold increase from 2025.
More than three-fifths of those surveyed believe the country's debt-to-GDP ratio will not significantly decrease and will worsen until it causes a major crisis. This sentiment is reinforced by comments from fixed-income portfolio managers who are less optimistic about the long end of the curve due to the fiscal picture and higher volatility, preferring shorter-term notes. The Treasury's decision to double its buyback operations for securities dated from 10 to 30 years is seen by strategists as a signal of concern regarding long-end yields, potentially prompting further short-covering.
The survey also highlighted concerns about a potential feedback loop between hyperscaler debt and Treasury demand. Most respondents did not pinpoint a specific yield level that would negatively impact the US dollar, suggesting the greenback's fate depends more on the pace of bond selloffs and real yields. Despite higher Treasury yields, the Bloomberg Dollar Spot Index has remained relatively flat this year. Over 60% of respondents also expressed increased concern about the Treasuries market following the US government's willingness to support the Japanese yen, given Japan's status as the largest foreign holder of US debt.
