Institutions: The sell-off of U.S. Treasuries may be somewhat overdone.
43 minutes ago
Capital Economics believes the sell-off in US Treasuries is primarily driven by changes in the market’s near-term interest rate expectations. Current 10-year US Treasury yields are approaching their June 2007 highs; economist James Reilly points out that this trend reflects rising oil prices and the strength of the US economy, rather than being fueled by AI-related bond issuance or fiscal concerns. Reilly forecasts that as the Federal Reserve’s tightening falls short of investors’ current expectations, 10-year US Treasury yields will “fall sharply to 4.25%” by the end of 2027. He notes that while AI-related bond issuance will continue to exert upward pressure on yields, its impact is less significant than media reports have implied, and will be offset by shifts in monetary policy expectations. As for fiscal concerns, he added that there have been no substantial fiscal developments recently sufficient to trigger a sharp spike in yields.
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