The sell-off in US Treasuries is far from over: the 4.5% support level has been breached, and 4.75% has become the next yield target.
2026-05-19 14:27:09
The latest massive sell-off of US Treasury bonds may be far from over.
Analysts say that persistent inflation, shifting interest rate expectations, and changes in investor behavior are likely to continue to put pressure on bond prices in the coming weeks and push yields higher.
During the Asian trading session on May 19th, the yield on the benchmark 10-year US Treasury note was 4.61%. Yesterday, the yield reached 4.63%, surpassing the previous high of 4.62% reached on May 22, 2025. For months, many investors have considered a 4.5% yield on the benchmark 10-year US Treasury note as an attractive buying point. However, with the yield breaking through that level, market participants are adjusting their assessment of the next "buying threshold."
"The question now is, will investors really buy here? Because I believe this sell-off will continue," said Padreik Garvey, ING's global head of interest rate and debt strategy. He added that the 10-year Treasury yield could potentially reach 4.75% in the next round, noting that several potential factors continue to fuel selling pressure. The 10-year Treasury yield was last quoted at 4.62%.
The rise in benchmark yields poses a challenge to the U.S. stock market, as higher borrowing costs will dampen corporate profits and consumer spending.
A key driver remains inflation. Recent stronger-than-expected consumer and producer price data reinforced market sentiment that price pressures have not eased as quickly as anticipated. With more data (especially for May) forthcoming, analysts expect inflation to remain high.
If bond investors believe inflation will remain high or even rise further, they will demand higher yields to compensate for the loss of purchasing power. Last Friday, the market-based long-term inflation expectation gauge—the 10-year breakeven inflation rate—rose to 2.507%, near a three-year high. This indicator reflects, to some extent, investors' confidence in the Federal Reserve's ability to control inflation over the long term.
ING's Garvey warned that even a slight rise in inflation expectations to around 2.6% or 2.7% could significantly push yields higher. "That could easily push yields up by another 10, 20, or even 30 basis points." This suggests the market may not have fully priced in the risk of sustained inflation. Investors are now considering the possibility that the Federal Reserve may keep interest rates high for an extended period, and even raise rates further if inflation does not ease.
As investors gradually accept the reality that "interest rate cuts are no longer in the discussion," short-term yields have risen.
Jim Barnes, head of fixed income at Bryn Mawr Trust, said market sentiment has clearly shifted. “It’s a different interest rate environment. In the absence of positive news about Iran, coupled with data showing persistent inflationary pressures, the bond market has practically ‘surrendered,’ acknowledging that it must repric and push yields higher.”
DBS Bank points out that the US economy faces the risk of overheating, and the 10-year US Treasury yield may enter the 4.5%-5.0% range.
Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth, further warned that it would not be surprising for the 10-year yield to rise to 5%, driven by a combination of factors including high oil prices, a vicious cycle of fiscal deficits, and the opposition of new Federal Reserve Chairman Warsh to expanding the balance sheet.
At the same time, an important factor is the change in the composition of U.S. Treasury bond buyers. In the past, large foreign buyers—such as countries with trade surpluses with the United States—were stable buyers and less sensitive to short-term market fluctuations.
Dingela stated that today's buyers are significantly different, more price-sensitive, and typically come from financial centers such as the UK, Belgium, the Cayman Islands, and Luxembourg. These countries are the main custodians of US Treasury bonds held by various global hedge funds, ranking among the top seven non-US holders of US Treasury bonds. Notably, the UK surpassed China in March of last year to become the second-largest holder of US Treasury bonds, currently holding nearly $900 billion.
Dingra points out that this shift means higher yields will no longer automatically attract buyers as they have in the past. Investors are becoming more cautious and selective, which could cause yields to rise further before demand recovers—potentially testing higher levels before finding a true bottom.
ING's Garvey summarized, "We're not over yet. It's only May, and inflation is likely to be even higher." Overall, the US bond market is currently facing multiple pressures, including persistent inflation, adjusting expectations, and shifting buyer demographics. With the 10-year Treasury yield breaking through 4.5%, upside potential has opened up, and levels of 4.75% or even higher are becoming apparent. The removal of a "ceiling" on long-term yields, coupled with price-sensitive investors dominating the market, means that yields may experience more significant volatility before finding a true bottom. In the short term, the pressure on the bond market is unlikely to ease, and all eyes will be on the upcoming inflation data and the Federal Reserve's policy communication signals.
Analysts say that persistent inflation, shifting interest rate expectations, and changes in investor behavior are likely to continue to put pressure on bond prices in the coming weeks and push yields higher.
The 4.5% "buy line" has been breached, and the market is repricing.
During the Asian trading session on May 19th, the yield on the benchmark 10-year US Treasury note was 4.61%. Yesterday, the yield reached 4.63%, surpassing the previous high of 4.62% reached on May 22, 2025. For months, many investors have considered a 4.5% yield on the benchmark 10-year US Treasury note as an attractive buying point. However, with the yield breaking through that level, market participants are adjusting their assessment of the next "buying threshold."
"The question now is, will investors really buy here? Because I believe this sell-off will continue," said Padreik Garvey, ING's global head of interest rate and debt strategy. He added that the 10-year Treasury yield could potentially reach 4.75% in the next round, noting that several potential factors continue to fuel selling pressure. The 10-year Treasury yield was last quoted at 4.62%.
The rise in benchmark yields poses a challenge to the U.S. stock market, as higher borrowing costs will dampen corporate profits and consumer spending.
Inflation remains the core driver, with the break-even inflation rate nearing a three-year high.
A key driver remains inflation. Recent stronger-than-expected consumer and producer price data reinforced market sentiment that price pressures have not eased as quickly as anticipated. With more data (especially for May) forthcoming, analysts expect inflation to remain high.
If bond investors believe inflation will remain high or even rise further, they will demand higher yields to compensate for the loss of purchasing power. Last Friday, the market-based long-term inflation expectation gauge—the 10-year breakeven inflation rate—rose to 2.507%, near a three-year high. This indicator reflects, to some extent, investors' confidence in the Federal Reserve's ability to control inflation over the long term.
ING's Garvey warned that even a slight rise in inflation expectations to around 2.6% or 2.7% could significantly push yields higher. "That could easily push yields up by another 10, 20, or even 30 basis points." This suggests the market may not have fully priced in the risk of sustained inflation. Investors are now considering the possibility that the Federal Reserve may keep interest rates high for an extended period, and even raise rates further if inflation does not ease.
As investors gradually accept the reality that "interest rate cuts are no longer in the discussion," short-term yields have risen.
Jim Barnes, head of fixed income at Bryn Mawr Trust, said market sentiment has clearly shifted. “It’s a different interest rate environment. In the absence of positive news about Iran, coupled with data showing persistent inflationary pressures, the bond market has practically ‘surrendered,’ acknowledging that it must repric and push yields higher.”
Institutional View: Outlook for 10-Year US Treasury Yields
DBS Bank points out that the US economy faces the risk of overheating, and the 10-year US Treasury yield may enter the 4.5%-5.0% range.
Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth, further warned that it would not be surprising for the 10-year yield to rise to 5%, driven by a combination of factors including high oil prices, a vicious cycle of fiscal deficits, and the opposition of new Federal Reserve Chairman Warsh to expanding the balance sheet.
The structure of US Treasury buyers is changing: price-sensitive investors are now the main force.
At the same time, an important factor is the change in the composition of U.S. Treasury bond buyers. In the past, large foreign buyers—such as countries with trade surpluses with the United States—were stable buyers and less sensitive to short-term market fluctuations.
Dingela stated that today's buyers are significantly different, more price-sensitive, and typically come from financial centers such as the UK, Belgium, the Cayman Islands, and Luxembourg. These countries are the main custodians of US Treasury bonds held by various global hedge funds, ranking among the top seven non-US holders of US Treasury bonds. Notably, the UK surpassed China in March of last year to become the second-largest holder of US Treasury bonds, currently holding nearly $900 billion.
Dingra points out that this shift means higher yields will no longer automatically attract buyers as they have in the past. Investors are becoming more cautious and selective, which could cause yields to rise further before demand recovers—potentially testing higher levels before finding a true bottom.
The sell-off is not over yet, and the market faces continued pressure.
ING's Garvey summarized, "We're not over yet. It's only May, and inflation is likely to be even higher." Overall, the US bond market is currently facing multiple pressures, including persistent inflation, adjusting expectations, and shifting buyer demographics. With the 10-year Treasury yield breaking through 4.5%, upside potential has opened up, and levels of 4.75% or even higher are becoming apparent. The removal of a "ceiling" on long-term yields, coupled with price-sensitive investors dominating the market, means that yields may experience more significant volatility before finding a true bottom. In the short term, the pressure on the bond market is unlikely to ease, and all eyes will be on the upcoming inflation data and the Federal Reserve's policy communication signals.
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