Four Technical Indicators Signal Further Bond Market Stress

Key points

• The 10-year US Treasury yield has risen 135 basis points since February to 5.23%, while the 30-year yield has climbed 110 basis points to 5.61%, both at levels not seen in more than 20 years.
• Volatility in rate options is rising, with the cost to insure against a 200-basis-point rise in 10-year swap rates reaching 132 bps, the highest since the March 2023 banking crisis.
• Corporate issuance to support AI infrastructure is driving selling, as hyperscalers hedge duration risk by selling Treasury futures; Goldman Sachs predicts a record $420 billion in debt issuance by these firms next year.
• Mortgage-backed security investors are increasing convexity hedging, selling Treasury futures to offset duration risk as rates rise, adding to market pressure.
• The 10-year/30-year yield spread has widened to 37 basis points, indicating a rising term premium as investors demand higher compensation for holding long-dated debt due to fiscal concerns.

Background

This development follows a period of rising yields in September, where the 10-year yield approached 5% and the 30-year neared 5.38%, driven by Middle East tensions and inflation fears. In early October, global bond markets saw further sell-offs, particularly in Europe, as investors recalibrated expectations amid hawkish central bank policies and political tensions between the US administration and the Federal Reserve.

Why it matters

Rising bond yields increase borrowing costs for governments and corporations, potentially slowing economic growth and impacting equity valuations. The current technical indicators suggest a feedback loop of selling could amplify market stress, while the steepening yield curve reflects growing concerns about long-term fiscal sustainability.

What to watch

Investors will monitor whether bond buyers step in to lock in current yields, which are at their most attractive since the George W. Bush administration. Key indicators include further moves in payer skew, AI-related debt issuance, and mortgage hedging activity, which could signal whether the current selling pressure continues or reverses.