US Treasury yields fall from 16-year high as Bill Ackman ends bearish bet

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The 10-year US Treasury yield fell back on Monday after rising above 5 per cent for the first time in 16 years, continuing the recent sharp swings in global bond markets.

The 10-year yield, the benchmark for asset prices across the globe, rose early on Monday to a peak of 5.02 per cent, its highest level since July 2007. The increase capped a multi-week rout in bond prices as investors bet that the US Federal Reserve would keep interest rates at their current high levels for longer.

Yields later slid from the peak, accelerating after billionaire investor Bill Ackman said he was ditching his bearish bet on long-term Treasuries. They traded at 4.85 per cent early in the afternoon in New York.

“There is too much risk in the world to remain short bonds at current long-term rates,” Ackman posted on X, formerly known as Twitter, saying that growth in the US was weaker than the mainstream data suggests. The hedge fund manager first disclosed his short position in 30-year Treasuries in August, adding to the pressure on bond markets. The 30-year US yield fell to 5.01 per cent, having earlier touched a high of 5.18 per cent.

Government bonds are a traditional haven for investors during moments of economic weakness or market volatility. Even so, they have benefited little from the outbreak of the Israel-Hamas conflict, which briefly triggered a flight to Treasuries this month but was quickly shrugged off as investors focused on the domestic factors pushing government borrowing costs higher.

Yields on longer-dated Treasury bonds have jumped since the Fed indicated in the so-called dot plot from its September meeting that officials were expecting a slower path towards interest rate cuts in 2024 and 2025. Robust US economic data since then has hardened expectations that the central bank is likely to keep rates higher for longer, while investors are also concerned about the US government’s vast borrowing plans.

Stronger than expected US retail sales, labour market and inflation data in recent weeks have helped push yields higher, despite the historic rise in interest rates delivered by the Fed over the past 18 months.

The risk of escalation in the Middle East would usually boost Treasuries, according to Mohit Kumar, chief European economist at Jefferies. “But the US economy is doing well and with a big wall of [Treasury] issuance coming up everyone is worried about who is going to buy,” he said.

In the futures market, traders were betting that interest rates would be at 4.7 per cent by the end of 2024, compared with expectations of a level of 4.2 per cent at the start of September.

The latest volatility in Treasury yields came after Fed chair Jay Powell on Thursday signalled that the US central bank was prepared to forgo raising interest rates when it next meets in November.

The Fed’s reluctance to raise borrowing costs further, despite a healthy economy, may force policymakers to hold them at a high level in order to bring inflation down, analysts said.

Growing concerns over the US government’s near $2tn annual budget deficit, exacerbated by Fitch Ratings’ decision in August to lower the US credit rating, have also added to upward pressure on yields.

Bond yields across Europe followed Treasuries. Ten-year German Bund yields, a benchmark for the eurozone, rose 0.08 percentage points before falling to trade flat on the day at 2.88 per cent. Yields on 10-year UK gilts rose by a similar amount and then fell to trade 0.03 percentage points lower on the day at 4.63 per cent.