View from the markets: Bonds, panic…and crisis?

Higher government borrowing, capital demand and fiscal uncertainty could keep long-term bond yields volatile, but current income levels are creating selective opportunities in fixed income.

• A 6% yield on 30-year US Treasuries has not been seen since the end of the last century, while roughly 22% of outstanding Treasuries now trade above 5% despite an aggregate average coupon of 3.25%.
• If those bonds were refinanced at current yields, the US Treasury’s interest bill would rise by over $4 billion; US 30-year mortgage rates have also reached 6.8%.
• Rising yields reflect concerns over developed-market deficits, possible renewed inflation from the Middle East, post-financial-crisis normalisation and record corporate borrowing linked to artificial-intelligence infrastructure.
• Thirty-year government bond yields have risen by 25 basis points in Germany and 70 basis points in Japan, while Shein’s planned Hong Kong IPO would reportedly raise $1.8 billion and add to demand for capital.
• A 5% yield on 10-year US Treasuries, compared with 4.7% currently, could attract buyers; a five-year US corporate bond with a 5.25% coupon could potentially generate a 29% compound total return if held to maturity.

Takeaway: Investors should keep duration and credit risks under control because fiscal, geopolitical and policy uncertainty may widen spreads and pressure equities, but attractive income and the possibility of a market correction could make selected bonds a buying opportunity.