U.S. Treasury markets have entered what HSBC strategists describe as a danger zone, with a sharp rise in long-term bond yields fuelling concerns that persistent inflation and elevated interest rate expectations could spill over into equities and broader risk assets.
The warning comes as the selloff in government bonds intensified on Tuesday, pushing the 30-year Treasury yield above 5.19%, its highest level since 2007. The benchmark 10-year Treasury yield also climbed close to 4.69%.
As of 9:10 p.m. ET, yields on the 30-year Treasury were up marginally at 5.184%, while the 10-year yield stood at 4.667%.
“U.S. Treasuries are now firmly in the Danger Zone, the level of 10Y UST that tends to put pressure on virtually all asset classes,” HSBC strategists said in a note, according to CNBC.
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The bank cautioned that any further repricing in terminal rate expectations could push yields “even further into the Danger Zone, likely leading risk assets temporarily lower.”
According to HSBC, markets have so far shown resilience because corporate earnings growth remains healthy, equity valuations had already adjusted partly before the recent Iran-related tensions, and investors continue to believe the Middle East conflict will primarily impact oil prices rather than trigger wider economic disruption.
The latest jump in yields has also drawn attention after the U.S. Treasury's 30-year bond auction cleared above the 5% mark for the first time since 2007.
Interactive Brokers Chief Strategist Steve Sosnick said the move carries significant psychological weight for markets.
Current conditions represent a yellow alert rather than a red alert, Sosnick noted, adding that yields nearing 4.65% on the 10-year Treasury or 5.5% on the 30-year bond could trigger sharper stress across financial markets.
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BMO Capital Markets strategist Ian Lyngen also warned that sustained upward pressure in bond yields could begin weighing more heavily on equities.
“If 30-year yields climb toward 5.25% in coming weeks, there will be a more durable pullback in equity valuations,” Lyngen said.
Wall Street stocks had retreated earlier on Tuesday amid concerns over sticky inflation and elevated oil prices linked to the prolonged Middle East conflict.
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