After reading about bond, stock, unit trust . I realized that The bond market has recently experienced significant fluctuations, with the US 10-Year Treasury yield reaching 5.0%.

This upward trend is primarily driven by an increase in real yields rather than inflation concerns.

Currently, bond yields are attractive. The higher yields not only improve the potential returns on bonds but also provide a cushion against possible interest rate hikes.

Instead of attempting to predict when rates will peak, consider using Dollar Cost Averaging The bond market has been on a roller coaster recently. As many headlines have noted, this is the worst bond market rout in 150 years. US government bonds have declined by more than 15% over the past three years. You might be wondering what exactly has happened to the bond market and how you should position your investments.

The US 10-Year treasury yield, an indicator closely watched by investors, touched 5% last week. This is an important psychological threshold and also the highest level since 2007.

It is very interesting to note that the recent surge in yield is not driven by inflation concerns, as the break-even inflation has declined since mid-2022. Instead, the upward movement is largely fueled by a rise in real yields, which reflect the market’s expected interest rates after accounting for inflation.

Determining the precise reasons behind this is complex, as the real yield metric involves numerous factors. However, three factors seem to be particularly significant at this juncture.

The US economy remains surprisingly resilient, with labour markets holding firm and unemployment rates at historic lows. Retail sales are also robust. Many economists and analysts now anticipate a soft-landing scenario and believe that a recession can be avoided.

Markets are re-calibrating to the new expectation that the policy rates will be higher than market previously thought. The ongoing strength of the US economy has meant that the Fed needs to keep rates higher for longer than expected to cool the economy.

Markets are concerned about the level of US government debt and the surge in bond issuance. Government borrowing soared during the pandemic and has tapered off as economies have rebounded. However, it has not returned to pre-pandemic levels. Currently, the budget deficit stands at about 7% of GDP, close to what was seen in the aftermath of the global financial crisis in 2008.

Finally, Will the interest rates continue to move up, you may ask. It is difficult to ascertain when the Fed will halt its rate hikes, even though we believe that we are approaching the end of this rate-hiking cycle. Predicting when long-end rates will peak is even more challenging. What we can say with certainty, though, is that yields are at a near 20-year high and interest rates typically move in cycles.