The U.S. Treasury market is experiencing its worst month of returns this year, as the bond market sell-off continues. This sell-off was triggered by the Federal Reserve’s indication that interest rates will remain elevated for a longer period of time. As a result, the 30-year yield has reached its highest level in over a decade, while the 10-year yield is nearing a 26-year high. The bond market was caught off guard by the Fed’s message, which has caused yields to adjust higher.
The iShares Core U.S. Aggregate Bond ETF, which tracks the U.S. Bloomberg Aggregate Bond Index, has also been affected by the sell-off. It closed at its lowest level since October 2022, coming close to levels seen in 2008. Traders are now closely monitoring the Core Personal Consumption Expenditures Price Index, which is the Fed’s preferred inflation gauge. The figure is expected to show a 3.9% year-on-year increase in August, the lowest since September 2021. A lower reading could help ease market anxiety related to the Fed’s interest rate path.
Meanwhile, billionaire investor Bill Ackman’s bet against 30-year Treasurys is paying off. He expects long-term Treasury yields to rise even further due to persistently high inflation. Ackman believes that rates on 30-year bonds could surpass the 5% mark, while the 10-year yield could approach 5% as well. He has previously expressed concerns about the U.S. economy and rising energy prices, stating that long-term inflation rates will not return to 2% as targeted by Fed Chair Powell. The bond market’s sell-off aligns with Ackman’s perspective.
Overall, the U.S. Treasury market is experiencing a significant sell-off, leading to negative returns. The Fed’s indication of higher interest rates for a longer period caught the bond market off guard and caused yields to surge. Traders are closely monitoring inflation data for further insight into the central bank’s rate policy. Bill Ackman’s bond short bet is proving successful, as he expects Treasury yields to rise even further due to persistent inflationary pressures.