US Treasury Sell-Off Eases Slightly As Investors Expect Yields To Rise

US Treasury yields were slightly lower early Tuesday, reducing losses in the previous session as investors look at how central banks are responding to renewed fears of inflation.

On Tuesday morning, the 10-year US Treasury note yield was over 1 basis point lower at  4.6073%. The key benchmark for US government borrowing, the 10-year US Treasury yield reached its highest point in 15 months on Monday, according to CNBC.

The 30-year Treasury yield, which is more sensitive to political risks, held steady on Tuesday morning at 5.1428%. The 2-year-Treasury note yield, which reacts more to short-term interest rate decisions by the Federal Reserve, was also over 2 basis points lower at 4.0695%.

Bond yields and prices have an inverse relationship, meaning that prices rise as yields fall. 

The slight ease in bond sell-off came as a Bank of America survey published on Tuesday revealed that a majority of global fund managers expect 30-year Treasury yields to rise. A total of 62% of the 200 respondents surveyed said they were targeting a rate of 6% on 30-year Treasury yields. 

This would mark a jump of almost 86 basis points from the current level and the highest since 1999. Just 20% of respondents said they were targeting a 30-year yield of 4%, Reuters reported. 

Treasury yields soared last week due to a dim outlook on the negotiations between the US and Iran, high crude oil prices and fears of inflation. New US data revealed that upward price pressures were starting to drip to the consumer, CNBC reported.

The US was not the only country whose bond market has witnessed fears over inflation and public debt. On Monday, the 10-year German bund yield hit its highest level since May 6, 2011. Similarly, the UK's 10-year Gilt yield reached its highest level since July 2, 2008. The 30-year Gilt hit its highest level since March 6, 1998 as uncertainty over British Prime Minister Keir Starmer's hold on power remains. The 30-year Gilt rose by less than 1 basis point to 5.773% on Tuesday.

The Japanese 10-year JGB also hit record highs on Monday, with the 10-year yield surging to its highest level since May 28, 1997, while the 30-year yield recorded its highest level in history. 

Elevated oil prices and inflationary concerns due to a standoff between the US and Iran mean that central banks may have to face a problem on interest rates. 

Mohit Kumar, chief economist and strategist at Jefferies, told CNBC, “Even if we get a [Middle East] deal… oil is not going back to pre-war levels. We think it's going to be 25-30% in higher in six months' time.” 

With no end in sight to political turmoil, high energy costs and deficit concerns, the breather on US Treasury yields may just be temporary.