Over Half of Market Participants Expect 30-Year US Treasury Yield to Hit 6% by Year-End

The US 10-year Treasury yield has breached the 5% threshold, with upward pressure on long-term interest rates showing no signs of abating. Meanwhile, shifts in the composition of US Treasury buyers are making the market more prone to sharp volatility.

Inflation Remains Sticky, Economy Shows Resilience

The latest yield surge is underpinned by fundamental factors. The US PCE price index rose 3.7% year-over-year in July, still significantly above the Federal Reserve's 2% target. Rising oil prices have added uncertainty to the inflation outlook; if energy prices remain elevated, the timeline for inflation to cool could be further extended.

At the same time, the US economy has not shown signs of a sharp slowdown. The labor market remains stable, consumer spending continues to be supported, and a wave of investment driven by AI data center construction is boosting corporate capital expenditure.

This economic resilience gives the Fed little urgent reason to pivot toward easing. The Fed recently raised its policy rate by 25 basis points to a range of 3.75% to 4%. Fed Governor Michael Barr stated that with inflation still above target and economic growth strong, further policy adjustments may still be necessary. Chicago Fed President Austan Goolsbee noted that the path back to 2% inflation will not be smooth.

As a result, long-end yields are facing pressure from three fronts—inflation, growth, and monetary policy—rather than just a short-term oil price shock.

Shifting Buyer Base Raises Volatility Risk

Supply-side factors are also weighing on the Treasury market. The US fiscal deficit remains large, and ongoing financing needs mean the market must absorb a significant volume of new government debt. Additionally, large technology companies are increasing debt financing for AI infrastructure investments, further boosting demand for long-term capital.

More notably, the composition of Treasury buyers is changing. Research from the New York Fed shows that participation by foreign official investors—who are less sensitive to price—has declined, while the role of hedge funds and private investors has grown.

Compared to official buyers, hedge funds and other market-driven investors are more focused on yields, prices, and financing conditions. When yields are high enough, such capital can absorb new issuance. However, if the market adjusts rapidly, their positions may shift accordingly, making bond demand more elastic.

This means that with rising supply and fewer stable buyers, the Treasury market may need to offer higher yields to attract capital. Once yields rise quickly, falling bond prices could trigger stop-losses, margin pressures, and forced deleveraging, further amplifying market volatility.

Therefore, the key concern is not whether hedge funds will exit, but rather that as the market becomes more dependent on price-sensitive capital, the impact of supply-demand changes on yields could be magnified.

What to Watch After 5%

A 10-year yield of 5% is not an all-time high, but it is enough to prompt a reassessment of the long-term interest rate equilibrium.

A Bloomberg survey of market participants found that more than half of respondents expect the US 30-year Treasury yield to potentially reach 6% by year-end. This does not mean 6% is certain, but it reflects growing concern that long-term rates may continue to rise.

At the same time, a 5% yield increases the attractiveness of Treasuries for long-term capital. Compared to the low-rate environment after the financial crisis, US government bonds now offer higher nominal returns, which may lead some funds to reallocate toward fixed-income assets.

Going forward, the key factors to watch are not only inflation and the Fed, but also the scale of US fiscal financing and whether the market can continue to absorb new debt issuance. If stable buyers continue to retreat and price-sensitive capital accounts for a larger share, Treasury yields may react more violently to market shocks.

This article is reprinted from "Wall Street News." Edited by Feng Qiuyi, Zhitong Finance.