Investors see surge in US Treasuries emerging as new market risk

Recent surges in US bond yields have sparked new concerns among investors, surpassing artificial intelligence as the most significant market risk. A Bank of America survey found that 33% of respondents believed a "disorderly rise in bond yields" posed the greatest threat. The 10-Year Treasury yield recently surpassed 5%, its highest level since July 2007, causing concern over borrowing costs for consumers and companies.

This increase in yields has negatively impacted Wall Street's main indexes, including a 0.63% drop in the Dow Jones Industrial Average. Analysts have attributed the rise to factors such as rising oil prices, inflation fears due to the Iran conflict, concerns about US fiscal policy, and spending by AI companies. The Federal Reserve is now expected to address inflation, with the US Federal Reserve likely to raise interest rates by 25 basis points on Wednesday.

The rise in yields is also affecting countries in the Gulf that rely on energy exports, potentially impacting their borrowing costs. Some Gulf nations may turn to government reserves and sovereign wealth funds to support projects. Rachel Ziemba, founder of geopolitical risk firm Ziemba Insights, suggests that the region's investment in US equities and private equity may continue.

Treasury Secretary Scott Bessent attributes the rise to global issues, noting that it coincides with similar increases in other advanced economies. Bessent also acknowledged the need to address the US deficit, which recently surpassed $40 trillion. The Treasury Department is seeking to buy back $6 billion in government debt, tripling its usual operations, to stabilize the market.

Peter Andersen, founder of Andersen Capital Management, believes that the low interest rates over the past decade have skewed perceptions of current Treasury levels, stating that a 10-year 5% Treasury yield is not unusual.