A recent surge in the U.S. Treasury yields may continue, and the volatility in the world’s biggest bond market is likely to persist as investors demand more compensation for the risk of holding longer-term Treasurys, according to the BlackRock Investment Institute.
Strategists at BlackRock Investment Institute had been underweight longer-term U.S. Treasurys on a six- to 12-month tactical horizon since late 2020 as they saw the economic outlook heralding higher rates. “The repricing of Federal Reserve policy rates has been a big part of the yield move since the Fed’s first hike in 2022,” Boivin and his team said. “We see the yield surge driven by expected policy rates nearing a peak. Rising term premium will likely be the next driver of higher yields.
Drivers of further yield jumps and tightening financial conditions are still up for debate, but one thing is for sure, these uncertainties are set to create more volatility in the near term, without yields moving in a clear direction, strategists said.