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The 10-year U.S. Treasury yield fell back on Monday after rising above 5 percent for the first time in 16 years, continuing recent sharp swings in global bond markets.

The 10-year yield, the benchmark for asset prices around the world, rose to a high of 5.02 percent early Monday, the highest since July 2007. The rise capped a several-week decline in bond prices as investors bet on the The US Federal Reserve would leave interest rates at their current high level for longer.

Yields later fell from their peak and accelerated after billionaire investor Bill Ackman said he was abandoning his bearish bet on long-term Treasury bonds. They were trading at 4.85 percent in New York early afternoon.

“The risk in the world is too great to short bonds at current long-term interest rates,” Ackman wrote on X, formerly known as Twitter, saying U.S. growth was weaker than mainstream data suggested. The hedge fund manager first disclosed his short position in 30-year Treasury bonds in August, adding to pressure on bond markets. The 30-year U.S. yield fell to 5.01 percent, after previously hitting a high of 5.18 percent.

Government bonds are a traditional haven for investors during times of economic weakness or market volatility. Still, they have benefited little from the outbreak of the Israel-Hamas conflict, which briefly sparked a rush to government bonds this month but was quickly dismissed as investors focused on domestic factors that drove up government borrowing costs.

Longer-term Treasury yields have surged since the Fed indicated in the so-called dot plot of its September meeting that officials expect a slower path to rate cuts in 2024 and 2025. Robust U.S. economic data has since bolstered expectations that the central bank is likely to keep interest rates high for longer, while investors are also concerned about the U.S. government’s extensive borrowing plans.

Stronger-than-expected U.S. retail sales, jobs and inflation data in recent weeks have helped push yields higher, despite the Fed’s historic rate hike over the past 18 months.

According to Mohit Kumar, chief European economist at Jefferies, the risk of escalation in the Middle East would normally boost government bonds. “But the US economy is doing well and with a big wall [Treasury] “When the issuance comes around, everyone is worried about who will buy,” he said.

In the futures market, traders bet that interest rates would be at 4.7 percent by the end of 2024, compared with expectations of 4.2 percent in early September.

The latest volatility in Treasury yields came after Fed Chairman Jay Powell signaled on Thursday that the U.S. central bank was prepared to forego a rate hike at its next meeting in November.

The Fed’s reluctance to further raise borrowing costs despite a healthy economy could force policymakers to keep them high to reduce inflation, analysts say.

Growing concerns about the U.S. government’s nearly $2 trillion annual budget deficit, heightened by Fitch Ratings’ decision in August to cut its U.S. credit rating, have also contributed to upward pressure on yields.

Bond yields across Europe followed government bonds. Yields on 10-year German federal bonds, a benchmark for the euro zone, rose 0.08 percentage points before falling to settle at 2.88 percent on the day. UK 10-year government bond yields rose by a similar amount and then fell, trading 0.03 percentage points lower at 4.63 percent on the day.

Source : www.ft.com

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