The US Treasury market is facing continued pressure, entering October with concerns about further losses after a significant sell-off in September. Historically, both September and October have shown median losses for Treasuries over the past decade, with September averaging a 0.9% decline and October a 0.7% decline, according to Bloomberg data.
This September is on track to be the worst for Treasuries since 2023, exacerbating an already weak seasonal trend. The recent surge in bond yields is attributed to a combination of factors including rising energy costs, strong economic growth fueled by the AI boom, ongoing fiscal concerns, and a hawkish Federal Reserve stance. Two-year US Treasury yields have surged almost 60 basis points in September, marking the biggest monthly jump since early 2023, while 10-year yields have pushed through 5.20% for the first time since 2007.
The sell-off has led to 20-year-and-out US Treasuries experiencing an 8% quarterly decline, their worst since Q4 2024. Market experts like Michael Hartnett from BofA suggest that a surge in bond yields could quickly end the US economic boom. The volatility in the bond market, as noted by Nomura's Charlie McElligott, indicates significant "fear of the unknown" among investors.
Despite the current challenges, some analysts, such as Hartnett, suggest that with policymakers beginning to show panic to cap yields, it might be an opportune time to "nibble" at bonds. Should US yields fall by 100 basis points over the next 12 months, the return on 10-year Treasuries could be 14%, and on 30-year Treasuries, over 20%.
