Key facts
- Investors surveyed by Bank of America cited 'disorderly' bond yield increases as the top market risk in September.
- The 10-year Treasury yield reached its highest level in nearly two decades, trading around 5%.
- Higher borrowing costs are impacting US consumers and businesses.
- Investors are reportedly dissatisfied with US fiscal policy, leading to bond sales and rising yields.
- Treasury Secretary Scott Bessent's $6 billion bond buyback announcement did not stem the rise in yields.
- Richard Saperstein predicted stocks would react negatively if the 10-year Treasury yield surpassed 5.25%.
The bond market's volatility in September has emerged as the foremost risk to financial markets, according to investors surveyed by Bank of America. The 10-year Treasury yield climbed to its highest level in nearly two decades, reaching 5.04% early Tuesday before settling around 5%. This surge in yields has rattled stock markets and heightened concerns about borrowing costs for consumers and businesses.
Analysts at Bank of America noted that "disorderly" rises in bond yields are the top tail risk for September, surpassing other threats like an AI bubble or a resurgence of inflation. While the recent climb in yields has been gradual, taking about four months to move from 4.5% to 5%, the elevated levels are seen as potentially persistent due to geopolitical concerns and high energy prices.
Carol Schleif, chief market strategist at BMO Wealth Management, suggested that the Treasury surge indicates investor unhappiness with current policy-making, leading to bond sales and consequently higher yields. She pointed out that even an orderly rise in yields could remain for some time.
Richard Saperstein, chief investment officer at Treasury Partners, predicted that the stock market would react poorly if the 10-year Treasury yield were to exceed 5.25%, especially if inflation remains unchecked. Saperstein believes these market movements will likely compel the Federal Reserve to implement another 25 basis point rate hike at its upcoming policy meeting, a view widely shared on Wall Street. He added that rising bond yields signal growing concerns about inflation and a widening deficit amid a strong economy.