Wall Street Divided as Key 5% Level Breached for 30-Year Treasury: Buy Now or Wait?

U.S. long-term Treasury bonds faced a fresh wave of intense selling, with the 30-year yield surpassing 5% and climbing further to 5.14%, approaching its highest level since 2007. This has plunged global bond investors into a rare, public divergence: should they enter the market now to lock in high yields, or continue to wait for a deeper decline? Following the breach of the 5% level for the 30-year yield, major institutions on Wall Street quickly split into different camps. Goldman Sachs sees some value signals emerging but advises caution; Barclays warns clients that yields could potentially surge further beyond 5.5%; while the head of research at BlackRock suggests investors reduce exposure to developed market government bonds, including U.S. Treasuries, and pivot towards equities. Concurrently, Gregory Peters, Co-Chief Investment Officer of PGIM Fixed Income, stated that although the yields are attractive to him, he maintains an underweight position on 30-year Treasuries. "The global bond market is in disarray, and investors are losing confidence." The core forces driving this divergence are a confluence of multiple pressures: persistent inflation, continuously widening fiscal deficits, surging energy prices triggered by the Middle East situation, and deep uncertainty surrounding the Federal Reserve's policy path. Analysts point out that these factors collectively suppress buying interest, causing key levels previously seen as strong support to be breached one after another. This has also fundamentally shaken the market's pricing logic for U.S. Treasuries. With key support levels falling consecutively, the market is searching for a new "floor." Before this round of selling, the market generally viewed a 4.5% yield on the 10-year Treasury as an attractive entry point and the 5% level for the 30-year as a key threshold capable of attracting demand. However, both levels have been breached without the anticipated strong buying support materializing. The 10-year Treasury yield is currently at 4.62%. Padhraic Garvey, Global Head of Rates and Debt Strategy at ING, anticipates the next target level is 4.75%. "The question is, will anyone really step in to buy during this sell-off, because I think this situation will persist," he said. Ajay Rajadhyaksha, Global Head of Research at Barclays, was more direct in his assessment: "Yields may be at their highs for the year, but that alone is not a reason to go long duration. The forces driving the sell-off—fiscal deterioration, defense spending, sticky inflation, central banks in a stalemate—are not going to resolve in a week." Guneet Dhingra, Head of US Rates Strategy at BNP Paribas, noted that once the 30-year yield surpassed 5%, its previous "ceiling" effect vanished. "In an environment of high inflation, rising deficits, and generally rising global bond yields, there is no anchor now. What can stop yields from rising further?" Rising inflation expectations have closed the window for Fed rate cuts. Inflation is the most central driving factor behind this sell-off. Recently released U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data both came in stronger than expected, dashing hopes for a rapid decline in inflation. The market's measure of long-term inflation expectations, the breakeven inflation rate, rose to 2.507% on Friday, nearing a three-year high. Garvey warned that even a slight rise in inflation expectations to 2.6%-2.7% could easily push yields up another 10, 20, or even 30 basis points. "That's the pathway for yields to break higher." Furthermore, as expectations for rate cuts have been thoroughly suppressed, short-term yields have also risen in tandem. Jim Barnes, Director of Fixed Income at Bryn Mawr Trust, stated that market sentiment has clearly shifted. "This is a different interest rate environment. With no positive developments in the Iran situation and data consistently pointing to inflationary pressures, the bond market seems to have laid its cards on the table—we have to reprice." Analysis indicates that investors are beginning to seriously consider the possibility that the Fed may not only refrain from cutting rates but could even resume hiking if inflation fails to recede. Beyond inflation, deep-seated changes in the structure of Treasury buyers are also weighing on the market. Dhingra pointed out that in the past, the main buyers of U.S. Treasuries were countries with trade surpluses with the U.S. These buyers were less sensitive to short-term price fluctuations and could provide stable demand support when yields rose. However, the current buyer base is significantly different—it now consists more of financial centers like the UK, Belgium, the Cayman Islands, and Luxembourg, which are the primary custodial hubs for U.S. Treasuries held by various global hedge funds. These regions are among the top seven largest non-U.S. holders of Treasuries. These buyers are more price-sensitive and will not automatically enter the market simply because yields rise. Dhingra stated this means yields may need to climb to even higher levels to truly trigger sustained buying. "We are not there yet. It's only May, and inflation data could go higher." Middle East tensions add volatility, making value arguments fragile. Beyond fundamental pressures, the Middle East situation has introduced additional uncertainty, rendering any "value buying" logic fragile. During Asian trading hours on Monday, long-term Treasury yields briefly hit their highest levels since 2023. They subsequently retreated on market rumors of a breakthrough in U.S.-Iran negotiations and the potential reopening of the Strait of Hormuz. However, the rally reversed again after reports denied these optimistic expectations. Late Monday in New York, former President Trump stated he had called off planned military action against Iran set for Tuesday, citing "serious negotiations" were underway. The bond market found brief support, but gains were limited as investors remained highly vigilant against "false dawns." John Sidawi, Senior Portfolio Manager at Federated Hermes, said: "The value argument right now is very fragile." He noted that this logic entirely depends on the direction of the Middle East situation. "If the situation escalates, the value argument can be thrown out." Goldman Sachs' strategy team characterized the current situation as an "uneasy introduction of value"—from multiple metrics, long-term Treasuries are beginning to look attractive, but the situation could likely worsen before it improves. The bank's strategy team, led by George Cole, advises that investors hoping to go long duration should employ structured strategies that can limit downside risk. They recommend waiting for either a "deeper sell-off" or a "credible signal of restored energy flows" before considering increasing long-duration positions.