4 Key Reasons US Treasury Market Selloff Is Likely to Continue in the Months Ahead

investing.com:

A perfect storm may be brewing for the bond market as a combination of factors drives yields higher.

Exhibit A is the benchmark 10-year Treasury yield, which rose again in yesterday’s trading to 4.61% (Sep. 27), the highest since 2007. Several other maturities on the yield curve are also trending higher, including the policy-sensitive 2-year rate, which ticked up to 5.10%, just below its previous peak set in 2006.

There are several factors lifting yields. Until there’s a material shift in one or more of the catalysts, it’s possible (likely?) that yields will continue to trend up. In turn, monitoring the factors that are lifting yields is crucial for managing expectations in the bond market. With that in mind, here’s a brief summary of four key reasons behind the selloff in Treasuries.

Mike Cudzil, portfolio manager at Pimco, said:

“Markets are trying to understand how low inflation can get if you have a 3.5% unemployment rate, a resilient economy, and interest-rate-sensitive sectors—including housing and autos, which did slow last year but now have started to perform pretty well again despite the rates,”

He tells Morningstar:

“There has been a rise in inflation expectations in the market, and that corresponds to a Fed that is no longer actively fighting inflation but letting higher but stable rates do the work,” says Briggs. “Inflation is coming down but is still above target, so it’s reasonable for investors to require a bit more risk premium in inflation.”

Next month’s initial estimate of US gross domestic product from the government is expected to top 3%, according to the median nowcast of several sources compiled by CapitalSpectator.com. If correct, economic output will accelerate by a meaningful degree compared with