Great Bond Shakeout Locks In a 5% World ‘Until Something Breaks’

AI Summary

US Treasury yields are rising sharply, indicating a fundamental market shift influenced by high oil prices, increased AI spending, and large US budget deficits amid Federal Reserve's inflation control measures. This bond market pressure aligns with hawkish US monetary policy responding to strong economic data.

As yields on US Treasuries soar past one high after the next, a reality is sinking in deeper across Wall Street and Washington: More than merely a bond-market slump, this might just be a fundamental shift. Myriad forces have combined to push the government’s borrowing costs higher — from $100-a-barrel oil and the AI spending boom, to yawning US budget deficits adding to a record $40 trillion debt load — all against a backdrop of a Federal Reserve bent on cooling inflation that’s run well past target for years. The selling pressure intensified this week as energy prices surged anew and data showed US businesses are humming along, giving an already hawkish central bank more reasons to keep raising interest rates. For a closer look, we speak with Kelsey Berro, Fixed Income Portfolio Manager at JPMorgan Asset Management. (Source: Bloomberg)