US 10-year Treasury yield could hit 6% as oil prices, debt worries mount: Pimco CIO

The benchmark 10-year US Treasury yield could rise to 6% for the first time since 2000 as elevated oil prices fuel inflation concerns and mounting public debt worries weigh on the bond market, Pimco Chief Investment Officer Dan Ivascyn said, Reuters reported.

A move towards 6% remains possible in the near term, Ivascyn told the Financial Times, citing technical pressures in the market, including hedge funds unwinding losing bond positions.

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The 10-year Treasury yield, a key benchmark for global borrowing costs and asset valuations, has climbed nearly 120 basis points this year. It was trading around 5.29%, just below the 5.34% level reached last week, its highest since 2002, according to the report.

Ivascyn said further increases in Treasury yields could trigger weakness across financial markets, particularly stocks and corporate bonds. A rise to 5.5% or higher could put significant pressure on risk-sensitive assets, he added.

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Oil prices and inflation concerns weigh on bonds

Global bond markets have faced heavy selling pressure this year as higher energy costs have heightened inflation concerns and expectations that interest rates will remain elevated for longer.

At the same time, the artificial intelligence boom has supported economic growth expectations, adding to concerns that central banks may have limited scope to ease monetary policy quickly.

Bond yields move inversely to prices, meaning that rising yields reflect falling bond prices. The 10-year US Treasury yield recorded its biggest quarterly increase of the 21st century in the three months ended September, Reuters reported.

The prospect of persistently high borrowing costs has raised concerns about the impact on government financing, corporate debt servicing and equity valuations.

Higher Treasury yields increase the returns investors can earn from relatively safe government securities, potentially making riskier assets less attractive.

Rising yields pose risks to stocks and credit markets

A further rise in US Treasury yields could tighten financial conditions globally, raising borrowing costs for businesses and consumers and pressuring equity valuations.

Stocks are particularly sensitive to movements in government bond yields because higher rates reduce the present value of future corporate earnings. Companies with substantial debt burdens could also face higher refinancing costs, while credit markets may come under pressure as investors demand greater compensation for risk, Reuters reported,

The prospect of yields reaching 6% would mark a significant escalation in the bond market selloff and reinforce concerns that investors are entering a prolonged period of higher interest rates.

With inflation risks, energy prices and US government debt concerns continuing to influence investor sentiment, Treasury yields are likely to remain a key indicator of broader market conditions.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)