Treasury Yields Rise in Month That Saw Inflation Fears Revive
Treasurys sold off and yields ended the month higher as renewed geopolitical tensions revived energy-inflation fears.
US Treasury yields have risen, challenging the prevailing inflation narrative, according to data from Treasury Inflation-Protected Securities (TIPS). The latest Federal Open Market Committee (FOMC) meeting saw 30-year Treasury yields reach their highest level since 2007, with the two-year yield increasing by 76 basis points. This has led to a 63% probability of a Federal Reserve rate hike in September, as per CME FedWatch.
Surprisingly, government bond investments are now more profitable than crypto trades, with 2Y, 10Y, and 30Y US Treasury yields showing the highest levels since 2019.
The bond sell-off is primarily attributed to inflationary pressures from higher commodity and energy prices, as well as the ongoing Iran war and the closure of the Strait of Hormuz. Despite the conflict's unclear resolution, rising oil prices have sparked concerns about inflation. However, Treasury Inflation-Protected Securities (TIPS) have provided evidence against this narrative, with the five-year breakeven rate declining since May, suggesting a lower expectation of future CPI inflation.
The discrepancy between nominal Treasury yields and TIPS breakeven rates highlights the focus on real yields rather than inflation expectations. This shift has negative implications for non-yielding assets like Bitcoin and may lead to credit contraction as a result of a potential recession. Additionally, increased competition for government bond issuance from corporate bonds in the AI sector further contributes to the bearish outlook for cryptocurrencies.
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- US Treasury yields rise as TIPS challenge the inflation narrative cointelegraph.com
