Investors see surge in US Treasuries emerging as new market risk

Investors are increasingly concerned about a surge in US Treasury yields, which have reached levels not seen in nearly two decades. The 10-year Treasury yield climbed to 5.041 percent earlier on Tuesday, its highest since July 2007, and pushed borrowing costs for consumers and companies higher. This rise in bond yields has replaced artificial intelligence as the biggest market risk according to a Bank of America survey, with 33 percent of respondents citing it as such.

The Dow Jones Industrial Average fell 328 points, or 0.63 percent, following the yield surge. Analysts attribute the increase to rising oil prices, inflation fears stemming from the Iran war, concerns about the US fiscal direction and spending by AI companies, and inflation worries. The Federal Reserve is expected to raise interest rates by 25 basis points on Wednesday to combat inflation.

Some Gulf energy exporters are losing revenue from the Iran war, which could make borrowing more expensive. For countries with lower revenue and higher spending needs, government reserve funds and sovereign wealth funds may need to step in to help with projects. While the rise in US Treasury yields is a concern, Rachel Ziemba, founder of geopolitical risk firm Ziemba Insights, believes issues in the region, such as lower revenue and higher spending needs, are more significant.

The Treasury Department is seeking to buy back $6 billion of government debt, tripling the size of its normal operations, to calm the market.