The yield on 30-year US Treasury bonds hit a new high since 2002, and the sell-off may continue under seasonal pressure.

The sell-off in the U.S. Treasury market has intensified again, with the yield on 30-year U.S. Treasury bonds rising to its highest level in more than 24 years.

On September 29, the yield on 30-year US Treasury bonds climbed to 5.62% at one point during the session, a new high since June 2002, marking the sixth consecutive trading day of increases.

The 10-year yield rose in tandem, reaching a high of 5.29% during the session, its highest level since 2007. The two-year yield was around 4.9%, the last major maturity still below 5%. Bloomberg data shows that U.S. Treasury bonds have fallen 2.6% year-to-date.

Soaring oil prices exacerbated inflationary pressures, strong U.S. economic data supported expectations of interest rate hikes, and market concerns about the fiscal sustainability of the federal government jointly drove the continued spread of this sell-off.

Citi strategists described the current market as a "mild buyer's strike," while Yardeni Research noted that unwinding of yen-funded carry trades was also contributing to the decline. Bloomberg indicators show that U.S. Treasuries have fallen 2.6% year-to-date.

Multiple pressures combined, and the sell-off continued to deepen.

The core driver of this round of US Treasury bond sell-offs is the renewed rise in inflation expectations.

Brent crude, the global oil benchmark, remained above $100 a barrel for most of September. High energy costs are being passed on to the global economy, prompting investors to bet that major central banks, such as the Federal Reserve, will raise interest rates further.

At the same time, the surge in corporate bond supply is also dragging down long-term yields.

According to Bloomberg, Paramount Skydance has launched its long-awaited investment-grade bond issuance, the largest component of its $52 billion joint debt financing plan to acquire Warner Bros., aiming to raise approximately $32 billion from the bond market.

SMBC interest rate strategist Monty Gandhi said:

This is the fifth largest investment-grade deal on record, and the rise in long-term yields may be related to it.

Concerns about the fiscal outlook also weighed on market sentiment. The total U.S. national debt surpassed $40 trillion last month, and government borrowing continues to expand at a historic pace.

Kristina Hooper, chief market strategist at Man Group, believes that rising long-term yields reflect growing market concerns about fiscal sustainability and inflationary pressures stemming from high oil prices.

She also pointed out that given the US fiscal trajectory and the "unpredictability" of Washington's foreign policy, US Treasuries will become less attractive to investors, especially overseas buyers.

Yardeni Research stated that the unwinding of yen-funded carry trades also contributed to this sell-off. Edward Yardeni, president of Yardeni Research, believes that rising yields "may be retaliation from bond vigilantes."

Seasonal factors make matters worse

Historical patterns also pose a disadvantage to the current market.

According to data compiled by Bloomberg, the median return on U.S. Treasury bonds over the past decade has fallen by 0.9% in September and 0.7% in October, making them the two weakest months of the year.

TD Securities strategist Prashant Newnaha said:

September's performance in the interest rate market was disastrous, and this painful trade may continue. As long as the situation in the Middle East remains unresolved, the fixed income market may continue to "de-risk," and this trend could spread to the stock market.

Masahiko Loo, senior fixed income strategist at State Street Investment Management, pointed out that U.S. Treasuries typically face a "seasonal test" in October due to increased bond supply coupled with investors returning from the summer off-season.

He stated that ahead of Thanksgiving, with the renewed surge in US Treasury supply, massive corporate bond issuance, and continued strong demand for AI capital expenditures, Masahiko Loo emphasized:

The competition for capital remains fierce, and the risk of further volatility in US Treasury bonds remains high.

Risky assets have shown relative resilience, prompting some investors to seek opportunities to invest.

Despite continued pressure on the bond market, risk assets such as stocks and corporate bonds are currently showing strong resilience.

The S&P 500 closed down 0.2% on Tuesday, less than 2% from its August record high; the Nasdaq 100 rose 0.2%. Laura Cooper, head of macro credit at Nuveen, noted:

The strong growth driven by AI investments has kept risk assets stable.

However, Cooper remains cautious about long-term U.S. Treasuries. She said that although she has "reduced" her ultra-underweight positions, she "has not yet started buying on dips," citing "near-term inflation risks still tilted to the upside and energy prices remaining high."

A few market participants have chosen to go against the trend. Wall Street veteran Jim Bianco has turned bullish on US Treasuries for the first time in six years, and long-term bond investor Chris Iggo believes that bonds are poised for a rebound after four difficult years.

Mark Dowding, chief investment officer of RBC BlueBay Asset Management, believes that the current sell-off in the global bond market has been excessive.

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