By David Randall
NEW YORK Several of Wall Street's biggest names are calling a top on longer-dated Treasury yields, after yields on the benchmark 10-year note briefly rose above 5% earlier this week to hit their highest level since 2007.
Analysts at UBS Global Wealth Management, which oversees $3.1 trillion, on Tuesday said Treasury yields are unlikely to rise further, adding to a chorus of investors saying that the selloff in U.S. government bonds is nearing an end.
Yields on bonds move inversely to their prices.
“From here, our view is that we are now close to the peak in yields,” UBS's strategists wrote, reiterating their preference for “high-quality bonds in the 1–10 year maturity segment.”
Others forecasting a peak in yields include billionaire investor Bill Ackman, who posted on Monday that his hedge fund, Pershing Square Capital Management, had covered its bet against 30-year Treasuries. Vanguard, the world's second-largest asset manager, also said that it is bullish on long-term Treasuries after a “cruel summer” for bond investors.
The swift rise in Treasury yields has come as data shows the U.S. economy continues to be resilient in the face of the Federal Reserve's aggressive interest-rate-hiking cycle. Fed Chair Jerome Powell said last week that the central bank may need to keep rates elevated in order to bring inflation back to its 2% target rate.
The Fed's next policy meeting will be held on Oct. 31-Nov. 1.
Many investors have found themselves on the wrong side of this year's Treasury selloff, given expectations of a recession that were widespread earlier this year. Treasuries are on track for an unprecedented third straight annual loss, while the benchmark 10-year yield is up around 155 basis points from its lows of the year.
The yield was recently at 4.83%, down from a peak of 5.01% on Monday.
Nevertheless, some investors believe the Fed’s 525 basis points of total rate increases will eventually slow the economy, bringing a decisive end to the central bank’s rate hikes.
Higher rates “will exert downward pressure on growth and inflation over our six to 12-month tactical horizon,” the UBS strategists wrote. “Lower growth and inflation in turn should allow yields to fall.”
"The economy is slowing faster than recent data suggests," Ackman, of Pershing Square Capital, wrote in his post on Monday on messaging platform X, formerly known as Twitter.
Rising yields have pressured stocks and reverberated throughout other markets, including real estate. The S&P 500 is down around 8% from its late-July high, though still up some 10% year-to-date.
(Reporting by David Randall; Editing by Leslie Adler)