After the key 5% threshold for the 30-year US Treasury yield was breached, Wall Street is divided: enter the market or wait and see?

U.S. long-term Treasuries are experiencing another round of aggressive sell-offs, with the 30-year yield climbing past 5% and reaching 5.14%, approaching the highest level since 2007. Global bond investors are now facing an unusual public disagreement: Should they lock in high yields now, or continue to wait for deeper declines?

After the 30-year yield broke through key levels, Wall Street’s major institutions quickly diverged. Goldman Sachs believes some value signals are emerging but advises cautious action; Barclays warns clients that yields could break above 5.5%; BlackRock’s research head recommends investors trim exposure to developed-market government bonds, including U.S. Treasuries, and shift to equities. Meanwhile, PGIM Fixed Income Co-Chief Investment Officer Gregory Peters said that while yields are attractive to him, he remains underweight in 30-year U.S. Treasuries. “The global bond market is chaotic, and investors are losing confidence.”

The core driving force behind this disagreement is the convergence of multiple pressures: persistent inflation, widening fiscal deficits, surging energy prices due to Middle East tensions, and deep uncertainty over the Fed’s policy direction.

Analysts point out that these factors have jointly suppressed buying, causing previously strong support levels to be breached and fundamentally shaking the market’s pricing logic for U.S. Treasuries.

Key support levels breached, market searches for a new “floor”

Prior to this sell-off, the market generally regarded a 4.5% yield on 10-year Treasuries as an attractive buying point, and 5% for the 30-year as a critical demand threshold. However, both levels have been broken, and the expected strong buying support has not materialized.

The 10-year Treasury yield is currently at 4.62%. ING’s Global Head of Rates and Debt Strategy, Padhraic Garvey, expects the next target to be 4.75%. “The question is, will someone step in to catch the falling knife? Because I think this situation will continue,” he said.

Barclays Global Research Head Ajay Rajadhyaksha put it more bluntly:

“Yields may be at annual highs, but that alone isn’t a reason to take a long-duration position. The forces driving the sell-off—fiscal deterioration, defense spending, sticky inflation, central banks at an impasse—won’t disappear in a week.”

BNP Paribas U.S. Head of Rates Strategy Guneet Dhingra points out that once the 30-year yield is above 5%, the old “ceiling” effect disappears.

“In an environment of high inflation, rising deficits, and globally rising bond yields, there is no anchor now—what can stop yields from rising further?”

Rising inflation expectations, Fed rate cut window closes

Inflation is the core driver of this round of sell-off. Recently released CPI and PPI data have both exceeded expectations, dashing hopes for a rapid decline in inflation.

The breakeven inflation rate, which measures long-term inflation expectations, rose to 2.507% on Friday, close to a three-year high. Garvey warns that even a slight rise in inflation expectations to 2.6%-2.7% could easily push yields up another 10, 20, or even 30 basis points. “This is the pathway for yields to break higher.”

Moreover, with rate cut expectations thoroughly dashed, short-term yields are rising as well. Bryn Mawr Trust’s Director of Fixed Income, Jim Barnes, says market sentiment has clearly shifted.

“This is a different rate environment. With no progress on Iran, and data continuing to point to inflation pressures, the bond market seems to be calling the bluff—we have to repricing everything.”

Analysts note that investors are now seriously considering that the Fed not only won’t cut rates, but may even hike again if inflation doesn’t subside.

Besides inflation, structural changes among Treasury buyers are also weighing on the market.

Dhingra points out that previously, the main buyers of U.S. Treasuries were countries with trade surpluses with the U.S., who were insensitive to short-term price swings and could provide stable demand as yields rose.

Now, however, the buyer base is very different—buyers are more from financial hubs like the UK, Belgium, Cayman Islands, and Luxembourg, which are major custodial centers for global hedge funds holding Treasuries, all among the leading non-U.S. holders.

These buyers are more sensitive to price and will not automatically step in as yields rise. Dhingra noted this means yields may need to go even higher to truly trigger lasting buying. “We’re not done yet. It’s only May, and inflation data will go even higher.”

Middle East tensions as a wild card, value arguments can vanish anytime

Beyond the fundamentals, Middle East tensions add further uncertainty to the market, making any “value buying” logic fragile.

During Monday’s Asian trading, long-term Treasury yields surged to the highest since 2023 but reversed after rumors of a U.S.-Iran breakthrough and possible reopening of the Strait of Hormuz. Subsequent reports denied this optimistic outlook and the market swung back.

In late trading in New York on Monday, Trump announced the suspension of planned military operations against Iran scheduled for Tuesday, saying “serious negotiations” are underway. The bond market saw brief support, but gains were limited and investors remained highly wary of “false dawns.”

Federated Hermes senior portfolio manager John Sidawi said, “Current value arguments are extremely fragile.” He noted that the logic depends entirely on Middle East developments: “If tensions escalate, you can throw value arguments out the window.”

Goldman Sachs’ strategy team calls the current situation “the introduction of value unease”—by multiple metrics, long-term Treasuries are starting to look attractive, but things may get worse before they get better.

The team led by George Cole recommends investors seeking long duration positions use strategic structures to limit downside risk, and wait for a “deeper sell-off” or “credible signals of energy flow resumption” before adding long-duration exposure.

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