US Treasury Yields Hit Highest In Over 10 Years: Ackman Scores Early Win Over Buffett

U.S. long-term Treasury yields have soared to their highest levels in more than 10 years, unsettling investors as these traditionally “risk-free” rates continue to climb.

The 10-year Treasury note’s yield reached 4.30% during the Aug. 17 session, nearing the October 2022 highs of 4.33%, last touched over 15 years ago.

When market-derived 10-year inflation expectations, commonly known as the breakeven rate, are factored out, the real yield offered by the 10-year Treasury now hovers around 2%, marking its highest point since 2009.

Simultaneously, the 30-year Treasury yield climbed to 4.41%, breaking through the October 2022 highs and reaching levels last witnessed over a decade ago, around May 2011. The 30-year real yield surged to 2.15%.

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Chart: US Treasury Yields Soar To Over A Decade Peak

First Round Goes to Bill Ackman

Investor attention has been drawn to the Treasury market, amid the sharp surge in yield and price declines.

The iShares 20+ Year Treasury Bond ETF TLT has lost 8% over the past month, falling near the lows of 2022 and April 2011.

This trend has prompted renowned investors, including the legendary investor Warren Buffett and billionaire hedge fund manager Bill Ackman to adopt contrasting strategies.

"There are many times in history where the bond market reprices the long end of the curve in a matter of weeks, and this seems like one of those times," Ackman wrote on X. He predicts yields could reach 5.5%.

In contrast, Buffett provided a counterpoint, saying that investing in Treasuries is a thing “people shouldn't worry about,” asserting his confidence in the assets.

The “Oracle of Omaha” said during a CNBC interview that the U.S. government bond market is the safest place to be. Berkshire Hathaway Inc. BRK BRK held $103.89B worth of short-term Treasuries in its balance sheet at the end of the first quarter.

Why Are U.S. Treasury Yields Rising?

Recent minutes from the July 25-26 FOMC meeting revealed that most participants continued to see significant upside risks to inflation, potentially necessitating further tightening of monetary policy.

In addition, the resilience of U.S. economic activity has alleviated recession fears, providing support to the climb in Treasury yields.

Fed staff projections accompanying the July FOMC meeting indicated a postponement in the projected timing of a recession and an increased probability of avoiding a recession through 2024. Beyond economic factors, market dynamics including demand and supply of bonds are at play.

The U.S. Treasury increased the size of its quarterly bond sales for the first time in over two years to fund growing budget deficits. The rising Treasury issuance is testing the resilience of demand from investors, as concerns mount that structurally elevated budget deficits could become the norm rather than the exception.

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Image created using artificial intelligence with MidJourney.