The consensus read on the 30-year Treasury yield spike this week is that yields have finally reached levels worth buying. The data underneath that comfortable narrative is rather less encouraging, and at least one market observer thinks the carry trade may be part of the story too.
A Volatile Week That Ended on a High Note for Yields
The 10-year Treasury yield closed the week at 5.28%, after a turbulent Thursday-Friday session that spanned a 21-basis-point trading range in just two days. On Thursday, the 10-year yield hit 5.36% intraday, then fell sharply to 5.15% Friday morning when employment headlines landed, before clawing back to 5.30% in the afternoon and settling at 5.28%, up 11 basis points on the week. According to CNBC, the 10-year yield was also trading around 5.253% during the session, underlining how narrow the gap between the day’s range and that number really was.
The Friday morning rally fizzled quickly once investors looked past the headlines at the actual jobs data: private-sector employers created 46,000 jobs while governments shed 17,000. Decent enough, not a rout. The macro headwinds that had been hanging over the bond market did not disappear with one morning’s employment print. The deficit, a debt load racing towards $41 trillion, inflation that has refused to retreat, and a steady flood of new bond supply all remained squarely in the frame. Yields re-climbed accordingly.
The 30-year Treasury yield closed the week at 5.63%. On Thursday it briefly touched 5.69%, the highest since 2002. CNBC reported that earlier in the session it jumped to just above 5.6%, matching its highest level since June 2002, when the long-dated bond yield hit 5.644%. That contextual anchor matters: we are not in uncharted territory, but we are testing levels an entire generation of bond investors never saw during their active careers.
What the 30-Year Treasury Yield Spike May Actually Be Signalling
The popular framing treats the yield spike as a straightforward supply-and-inflation story. That may be incomplete. Ed Yardeni of Yardeni Research pointed out via Yahoo Finance that the rise in yields may partly reflect an unwinding of the yen carry trade, in which investors borrow cheaply in Japan and place the proceeds into higher-yielding assets elsewhere. If that dynamic is contributing, the move has a mechanical, positioning-driven component that is not captured by the deficit-and-inflation narrative alone. It also means the selling pressure could ease independently of any change in the fundamental picture.
The geopolitical backdrop adds another variable. CNBC noted that the recent spike in borrowing costs, which has seen yields move to multi-year highs, comes as the US and Iran held separate talks with mediators with the aim of resolving the ongoing conflict in the Middle East. A de-escalation there could shift the risk appetite that has been pushing money away from duration.
On Wolf Street, Wolf Richter laid out the arithmetic on a specific 30-year bond (CUSIP 912810TB4) bought back by the Treasury Department on 24 September at 50.6 cents on the dollar. That bond, originally sold at auction in November 2021 with a coupon of 1.875% and a yield of 1.94%, illustrates the full brutality of this bear market in graphic form. An investor who paid $560 for $1,000 face value in the secondary market on 24 September would collect $18.75 annually in coupon interest over 25 years and receive $1,000 at maturity in November 2051, for a total return of $909 on the $560 outlay. The yield to maturity on that basis is roughly 5.6%.
That sounds reasonable until inflation enters the calculation. Richter’s view is that an average inflation rate of 2% to 3% over the next 25 years seems unlikely, and that inflation will remain a major issue. At 5% average inflation, the real return on a 5.6% nominal yield to maturity becomes uncomfortable. At the sort of inflation spikes the US has seen historically, when the rate hit 15% or more, the bond becomes genuinely punishing. The market is not pricing that scenario. The question is whether it should be.
This bond bear market began in August 2020 after a 40-year bull run in which yields zigzagged steadily downward. The 10-year yield has risen from 0.5% to 5.28% over that period. Richter’s framing is that current yields represent a return to the lower end of the pre-quantitative easing normal range, not a blood-in-the-streets buying opportunity. The actual blood-in-the-streets moment, as he characterises it, came in the late 1970s through the mid-1980s, when the 10-year yield exceeded 10% and reached as high as 15% against raging inflation. That was the moment to load up. Richter’s own posture now: nibbling on Treasury Inflation-Protected Securities and considering the coming 10-year auction, with the explicit expectation that every purchase will be made too early and that better prices lie ahead. Corporate bond spreads remain too narrow to compensate for credit risk, so those stay off the table for now. The 30-year nominal bond at auction does not even merit a sniff at current levels, in his view.
