SCHQ - U.S. Treasury returns set for worst month this year; Ackman short bet pays off

2023-09-29 05:56:04 ET

U.S. Treasury returns are on track for the worst month this year, as the bond market selloff continued after the Federal Reserve signaled that interest rates would remain higher for longer.

The recent selloff has pushed the 30-year yield ( US30Y ) to its highest level in over a decade, while the 10-year yield ( US10Y ) surged to a near 26-year high.

"The bond market sold off because that higher-for-longer message really wasn't fully discounted ahead of time," said Kathy Jones, chief fixed income strategist, Schwab Center for Financial Research. "If the fed funds rate is going to stay where it is or move higher beyond 5.5% into the first half of 2024, then all yields have to adjust higher."

iShares Core U.S. Aggregate Bond ETF ( NYSEARCA: AGG ), which tracks the closely watched U.S. Bloomberg Aggregate Bond Index, closed at $94.13 on Thursday, a day after it ended at $93.85 - its lowest close since October 2022 and just shy of levels seen in 2008.

Traders are closely eyeing the Core Personal Consumption Expenditures Price Index - the Fed's preferred inflation gauge - expected later in the session, for further clues on the central bank's rate path. The core PCE figure is forecast to have risen 3.9% Y/Y in August, the lowest since September 2021.

"A tame core PCE price index reading could ease some of the Fed-based anxiety that hit markets," said Tom Essaye, founder, Sevens Report Research.

Bill Ackman's bond short

Meanwhile, billionaire investor Bill Ackman's bet against 30-year Treasurys is paying off, and he expects long-term Treasury yields will rise even further amid stubbornly high inflation.

"I would not be shocked to see 30-year rates through the 5% barrier, and you could see the 10-year approach 5%," he said .

Ackman earlier raised concerns over the U.S. economy and rising energy prices. "The long-term inflation rate is not going back to 2% no matter how many times Chairman Powell reiterates it as his target ."

See how Treasury yields have done across the curve at the Seeking Alpha yields page.

More on the  bond market

• Yield Curve Remains Bullish
• Higher-For-Longer Risk Continues To Grip Treasury Market
• Historical Evidence Between Real Yields Suggests Further Slump For SPY

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