r/finance • u/thisisinsider • 28d ago

Bond investors see a potential recovery after 10-year Treasury yields briefly topped 5%

https://www.businessinsider.com/bond-market-treasury-yields-inflation-interest-rates-outlook-fed-meeting-2026-9?utm_source=reddit&utm_medium=social_manual&utm_campaign=reddit_dist_r_finance&utm_content=manual_v1&utm_term=1a45bf16
360 Upvotes

96% Upvoted

63 comments sorted by

60

u/PugsAndHugs95 28d ago

I ain’t buying bonds or notes until the rates assure me that this asshole in the Whitehouse commits to balanced budget and paying down debt.

22

u/Baltimorebillionaire 28d ago

I dont know what you think you are trying to say, but the ability to invest a guaranteed 5% is incredible

33

u/PuzzleheadedOven2165 28d ago

If the 20 year average hits 7% it's an irreversible debt spiral that can only result in soft default where you hyperinflate the debt away. Your 5% return becomes worthless.

4

u/AmazingSugar1 28d ago

At a 7% annual compound interest rate, it takes approximately 10 years to double a debt.

6

u/PuzzleheadedOven2165 28d ago

Don't look at debt as a fixed number. Look at it ad a percentage of GDP or look at the interest payments as a percentage of the budget.

5

u/harbison215 27d ago

Isn’t this what got us in trouble in the first place?

Debt as a percentage of GDP is only a snap shot of the situation at a specific point in time. All those things can change due to both predictable or unpredictable events. We should have been more focused on the fixed number instead of letting politicians and economist convince us to look at it in other ways like you’ve mentioned.

To me it’s a definition of voodoo economics

3

u/PuzzleheadedOven2165 27d ago

If the interest payments on your debt are such a high percentage of your yearly budget that you can no longer afford any of the things that make your govt function... you're fucked. At that point you either become a failed state and continue treading water, or you monetize the debt to hyper inflate it away.

2

u/harbison215 27d ago

True but on your way to that point, telling yourself that your insane debt accumulation is ok because it’s only thus far a small portion of your budget to service.

And then wars happen, and then rates go up, and then etc etc. This is exactly why you don’t look at it that way.

2

u/PuzzleheadedOven2165 27d ago

I'm against debt accumulation. I'm for austerity and taxation.

2

u/harbison215 27d ago

Austerity sucks too. We know this from the results Europe experienced coming out of the last big financial crisis.

I’m for debt spending and liquidity injections when the market needs it, then I’m for paying it back once the economy is booming. We do the first part well, it’s the second part that nobody ever wants to do.

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2

u/Mrrrrggggl 26d ago

It now costs more to service the debt than the military. How much higher would interest payments as a percentage of budget would it take to convince you that it’s a death spiral, because the US certainly isn’t going to be paying less interest as a percentage of budget any time soon.

-3

u/Any-Tennis4658 28d ago

We are already in an irreversible debt spiral. The opening scene was 2008. We are in the beginning of the action sequence.

14

u/das_war_ein_Befehl 28d ago

It’s not irreversible, the US just needs to raise taxes and grow away the debt. It’s like watching someone drown in a puddle

11

u/PuzzleheadedOven2165 28d ago

A political impossibility. The right will never raise taxes, or cut military spending and the left will never cut services or accept austerity. The US is a system of two Santa clauses with no plan and no off-ramp.

1

u/Great-Guidance-6371 27d ago

Santa is so fun though and the elves! So cute.

6

u/auradex991 28d ago

With inflation running 3.5% that leaves you with pretty much nothing after you pay tax on the interest earned.

And the way this idiot is running the country, inflation could certainly go higher.

13

u/RespectmanNappa 28d ago

You are clearly not a fan of history. I’d recommend a tour of bond rates after WW2 and again in the 70’s. Our debt to gdp is significantly higher than in either of those periods and our government is going to continue deficit spending until people stop buying the debt altogether

8

u/PuzzleheadedOven2165 28d ago

Also, the us govt defaulted on their debt in the 70s, which is why they ditched the gold standard. France literally sent a warship to get their gold back.

-1

u/Successful_Car1670 28d ago

The US has never defaulted on the debt. Where you getting info. Abandoning the gold standard is a different thing

5

u/RespectmanNappa 28d ago

It has 3 times in fact

9

u/ThatThar 27d ago

It's actually defaulted at least 4 times.

In 1862, the government had issued demand notes known as "Greenbacks" that were able to be redeemed for gold in order to fund the Civil War. In January 1862, the government was unable to pay when owners of the notes came for their gold. Greenbacks issued after this default were treated as legal tender to prevent another default.

In 1933 during the Great Depression, the government defaulted on gold bonds. In Perry v United States, the Supreme Court ruled 5-4 that the government had the right to default on these.

In 1968, the government just straight up decided not to honor silver certificates they had issued, which were promised to be exchangeable for silver dollars.

In 1971, the government reneged on the Bretton Woods agreement by failing to redeem dollars held by foreign government for gold.

3

u/RespectmanNappa 27d ago

Didn’t know about the silver bonds in 1968. Thank you!

1

u/salamanderXIII 28d ago

That depends on inflation over the holding period.

I would find it surprising if someone told me they have conviction that 5% allows for adequate real return over 7 years, 10 years, and beyond.

1

u/mechadragon469 28d ago edited 27d ago

Guaranteed 5% real return is incredible. A LOT of people expect inflation will remain sticky and 5% nominal return will get crushed compared to equities during an inflationary period with excessive govt. spending.

2

u/One_Talk_3410 27d ago

If we enter a period of financial repression 5% won’t be incredible and loss of purchasing power on money tied up in bonds would be devastating. 

1

u/mechadragon469 27d ago

Exactly. If someone was going to try to get into Bonds I would, at a minimum, get a large allotment of TIPS

2

u/DasKapitalist 23d ago

I'm baffled why anyone thinks the sovereign debt bomb is a presidential issue. Congress passes budgets, and at this point the deficit is so large that it'd take something politically impossible like completely cancelling Social Security and Medicare just to balance the budget and make tiny repayments on the debt.

No president can do that. Congress can but wont, because introducing fiscal reality to their boomer voting base would be committing political seppuku. It's gonna be a default or inflation, barring some wildly implausible "Disgruntled accountant carries out a coup > declares himself dictator for life > cancels basically all Federal spending > spends 3-4 decades paying down debt".

The same situation exists in most other Western countries. Some like Japan have even worse sovereign debt bombs growing because of the same "the debt is too large to handle with modest cuts, and voters will have a melty if you suggest large cuts".

3

u/UnknownBreadd 28d ago

Fuck Trump, but the national ‘budget’ is not a true budget that ever needs to be balanced.

2

u/HVDynamo 24d ago

If you want to remain solvent it sure as hell is.

1

u/UnknownBreadd 24d ago

It’s got nothing to do with solvency. It’s inflation and price levels.

Answer me this: if we must target some amount of inflation each year (often stated as 2%), but we want the economy to grow - then how could we possibly do both things (generate some amount of inflation, and some amount of growth) if we were not constantly expanding the money supply?

If the money supply stayed constant (no deficit/increasing ‘debt’) then you would have significant deflationary pressured as the economy expanded whilst the amount of money stayed constant.

1

u/InnocentSadness 27d ago

Hey. First have college student here 30 years old no family. Got a late start on learning about finances and stuff because I had no parents growing up. Not even someone to show me a work ethic. But I'm here now and I'm taking my social's degree for CIT. I just got my refund check. And I got like 5k id love to park and let grow decently.. I know it's not much.. and I can't expect much from it.. but God I could use a break so I could totally focus on this degree. I feel my path will benefit a lot of regular people in the years to come. Thanks and God bless for the advice!

34

u/thisisinsider 28d ago

TL;DR: The 10-year Treasury yield fell 5 basis points to 4.95% after briefly moving above 5%, while the 2-year yield dropped about 4 basis points to 4.68%. Jennifer Sor reports that falling oil prices, lower inflation expectations, and investors' view that the Fed regained inflation-fighting credibility are driving calls that the recent bond sell-off has reached "maximum pain" and may be reversing.

58

u/das_war_ein_Befehl 28d ago

Falling oil prices

I’m sorry what?

24

u/PugsAndHugs95 28d ago

Must be AI with Trump as a source lol

4

u/IncomingAxofKindness 27d ago

Natalie! Get me the REAL oil prices!

51

u/elefontius 28d ago

Dude, no.

I work in the bond market and everyone is underwater in their portfolios and no one I know sees that changing any time soon. The three factors mentioned - oil prices, lower inflation exception, and investors view that the Fed has regained credibility are laughable wrong. Oil prices fell for a couple of days - that's not the overall trend and there's no geopolitical developments that would make any reasonable person think that these prices are transitory. In the last week alone we're watching an expansion of the conflict into Yemen. Which apparently is "good" because the Houthi pinkie promised not to attack US/Israeli flagged ships. Which leads into inflation expectations - again, look at oil. This last Fed hike isn't tightening lending - the bond market has already forced that by driving yield up.

The Fed hasn't regained any credibility - they went out and did the bare minium. The bond yield curve is pretty clearly spelling out they think the Fed is behind the curve and the lack of forward guidance and a dot plot during this period is unsettling. Simply put the bond market is f'ed up because the Treasury and Fed are doing weird shit on top of the Iran war situation. The very fact that the yields went right back after the Fed meeting tells you what the bond market thinks. Everyone is rebalancing their risk and for a lot of large investors that means minimizing their exposure to long run US bonds and finding alternatives.

25

u/TheProfessional9 28d ago

The reduction in bonds was from a massive debt recycle campaign by the Treasury last week. From the last thing I saw, it was up to almost 20b instead of the normal 2b.

Oil dropped because trump said Iran deal and for some reason the market believed him. Well that or more refineries going down means less crude can be processed.

Gas and diesel are still rising.

1

u/crimsonhues 28d ago

Is 5 bps considered a big jump? And didn’t the Fed chairman announce that they will raise interest rate to curb inflation? didn’t think it was trending lower.

3

u/neck_iso 28d ago

All of this discussion for a tiny reversion to recent moves. Nothing moves in a perfect straight line.

2

u/Shoddy_Front_2582 27d ago

Falling yields isn’t always a bullish sign y’all. This can happen before a recession too

1

u/harbison215 27d ago

Where are yields falling?

3

u/Shoddy_Front_2582 27d ago

Response to article. “Recovery” of yields means they fell

1

u/harbison215 27d ago

I get that. I’m saying that even though the article mentions yields falling, they aren’t.

1

u/Shoddy_Front_2582 27d ago

No. But they didn’t go up with hikes (talking about the long end). Usually a problem when that happens.

2

u/MajorGeneralMaryJane 24d ago

This aged well

2

u/ZealousidealDig8074 22d ago

In their dreams, of course…

1

u/HAFr00 22d ago

Bond markets moving before the broader economy does is always worth watching. The yield curve can tell an interesting story.

1

u/IntroductionOk9280 19d ago

The fed reserve should of raised the overnight rate 50 points not 25 at their last meeting. They need to show the bond vigilantees that they are serious about bringing down inflation.

1

u/ImmediateReindeer516 19d ago

I'm still watching the long end of the curve. That's where the inflation and debt concerns seem hardest to ignore.

1

u/FunGrade7994 14d ago

i'm not sold that a single 5% bump signals a long-term recovery - the market still keeps a pretty tight eye on the curve and any bump back below 4.5 could push bond prices back up again. it all depends on how long the fed keeps the rate hikes tightening.

1

u/FollowingLatter6261 10d ago

u/PugsAndHugs95, the 5% threshold is pretty much a band‑width marker that traders watch, but real market moves are driven by the Fed’s stance and Treasury supply, not just a budget pledge. If the higher yields hold, the cost of capital will rise, but it’s the rate trajectory that matters more than the headline. Also, note that bond price swings happen before the wider economy reacts—so a quick dip could just be a reset rather than a crash.