US Treasury yields fell slightly, but institutions warned that the "danger zone" had not yet been lifted.
2026-05-20 16:52:18
U.S. Treasury yields edged lower on Wednesday (May 20) after a sharp sell-off in the bond market, with continued inflation concerns weighing on investor sentiment. The 10-year Treasury yield fell 0.34% to 4.65%. On Tuesday, it touched 4.682%, a new high since January 2025. Meanwhile, the 30-year Treasury yield fell about 0.15% to 5.17%. On Tuesday, it rose to 5.197%, the highest level since July 2007. The 2-year Treasury yield, more sensitive to short-term Federal Reserve interest rate changes, fell 0.49% to 4.106%.
Traders are weighing the prospect of a potential escalation of conflict in the Middle East, its lasting impact on prices, and how these developments will shape the monetary policy of the Federal Reserve and other central banks. The minutes of the Federal Open Market Committee (FOMC) meeting held on April 27-28 will be released later Wednesday. The Fed kept the federal funds rate unchanged at 3.5% to 3.75% at this meeting, but this decision triggered the most serious division within the FOMC in more than 30 years, with the rate-setting committee splitting 8-4.
In a report on Tuesday, HSBC strategists said that U.S. Treasuries have entered “danger zone” and warned that stubborn inflation and hawkish interest rate expectations could begin to put pressure on broader risk assets.
Citigroup points out that the new focus in the bond market has shifted to 5.5%, rendering the previously considered bottom-fishing threshold of 5% virtually meaningless. Citigroup strategists bluntly state that "the market has underestimated the risk of the Federal Reserve raising interest rates starting this year." At the same time, Citigroup observes a "significant increase in new short-selling risk" over the past five days, with current short positions at a high level both tactically and structurally.
Oil prices fell 1% on Wednesday after U.S. President Trump reiterated that the conflict with Iran would end "soon".
Previously, US Vice President Vance stated that progress had been made in US-Iran negotiations, and neither side wanted to resume military action. Trump told members of Congress Tuesday evening that the conflict would end quickly, but he also said that he was only an hour away from ordering the attack before the action was postponed.
Economic data expected to be released on Wednesday includes the latest average rate for 30-year fixed mortgages from the Mortgage Bankers Association for the week ending May 15. Brin Jones, head of fixed income at Rathbones, said the global bond market is currently pricing in “significant” inflation risks as global borrowing costs remain high.
Jones said on Wednesday, "If the conflict continues for several more months, yield and inflationary pressures will obviously continue to build. Obviously, if the situation eases, yields will fall quickly."
In summary, US Treasury yields have temporarily retreated slightly after a sharp sell-off, but the market is still pricing in significant inflation risks. The 10-year and 30-year Treasury yields remain around 4.65% and 5.17%, respectively, at multi-year highs.
Traders are closely watching the Federal Reserve meeting minutes to assess the extent of internal policy disagreements. Institutions like Rathbones believe that the global bond market has entered a phase highly sensitive to inflation, and the next direction of yields will depend heavily on the evolution of the Middle East conflict.
Market focus: The risk of escalation of conflict in the Middle East and its impact on inflation and monetary policy.
Traders are weighing the prospect of a potential escalation of conflict in the Middle East, its lasting impact on prices, and how these developments will shape the monetary policy of the Federal Reserve and other central banks. The minutes of the Federal Open Market Committee (FOMC) meeting held on April 27-28 will be released later Wednesday. The Fed kept the federal funds rate unchanged at 3.5% to 3.75% at this meeting, but this decision triggered the most serious division within the FOMC in more than 30 years, with the rate-setting committee splitting 8-4.
Institutional View: HSBC says US Treasuries have entered a "danger zone," with sticky inflation posing a risk to risky assets.
In a report on Tuesday, HSBC strategists said that U.S. Treasuries have entered “danger zone” and warned that stubborn inflation and hawkish interest rate expectations could begin to put pressure on broader risk assets.
Citigroup points out that the new focus in the bond market has shifted to 5.5%, rendering the previously considered bottom-fishing threshold of 5% virtually meaningless. Citigroup strategists bluntly state that "the market has underestimated the risk of the Federal Reserve raising interest rates starting this year." At the same time, Citigroup observes a "significant increase in new short-selling risk" over the past five days, with current short positions at a high level both tactically and structurally.
Oil prices fell, and expectations of a ceasefire rose.
Oil prices fell 1% on Wednesday after U.S. President Trump reiterated that the conflict with Iran would end "soon".
Previously, US Vice President Vance stated that progress had been made in US-Iran negotiations, and neither side wanted to resume military action. Trump told members of Congress Tuesday evening that the conflict would end quickly, but he also said that he was only an hour away from ordering the attack before the action was postponed.
The "anxiety" in the bond market continues.
Economic data expected to be released on Wednesday includes the latest average rate for 30-year fixed mortgages from the Mortgage Bankers Association for the week ending May 15. Brin Jones, head of fixed income at Rathbones, said the global bond market is currently pricing in “significant” inflation risks as global borrowing costs remain high.
Jones said on Wednesday, "If the conflict continues for several more months, yield and inflationary pressures will obviously continue to build. Obviously, if the situation eases, yields will fall quickly."
The bond market is caught in a tug-of-war between inflation fears and geopolitical hopes, with yields fluctuating at high levels in the short term.
In summary, US Treasury yields have temporarily retreated slightly after a sharp sell-off, but the market is still pricing in significant inflation risks. The 10-year and 30-year Treasury yields remain around 4.65% and 5.17%, respectively, at multi-year highs.
Traders are closely watching the Federal Reserve meeting minutes to assess the extent of internal policy disagreements. Institutions like Rathbones believe that the global bond market has entered a phase highly sensitive to inflation, and the next direction of yields will depend heavily on the evolution of the Middle East conflict.
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