The current rise in long-term US Treasury yields is primarily driven by the resilience of the US economy pushing up real interest rates, coupled with an inflation premium resulting from the US-Iran geopolitical tensions. The 10-year US Treasury yield has entered a trading range of 5.15%-5.25%. Tactically, the price of US Treasuries in the 5.25%-5.30% range has become quite attractive, offering a potential annualized profit of over 5%. Gold, as a non-interest-bearing asset, is currently under pressure from high real interest rates and is in a short-term oversold state. Once US Treasury yields fall from their highs, gold will present a trading opportunity. Going forward, it will be crucial to monitor US economic data and observe whether the "overheating expectation" reaches a turning point, which will determine the magnitude of this gold rebound.

The recent rise in US Treasury yields is driven by two sets of underlying logics.

Many market participants simply equate rising US Treasury yields with runaway inflation, but the current market situation needs to be analyzed from two perspectives: real yields and inflation expectations. The nominal yield on US Treasury bonds equals the real yield (TIPS + broad inflation expectations). If rising real yields dominate the market, it indicates the market is pricing in strong US economic resilience, with corporate investment, employment, and profits exceeding expectations. The market believes high interest rates can be maintained for longer, which is the main driver of the current market trend. Deutsche Bank data shows that the recent rise in US Treasury yields has been largely contributed by real yields, with inflation expectations contributing very little. AI capital expenditure, corporate orders, and S&P 500 earnings expectations collectively support this strong economic expectation. If rising inflation expectations dominate, it often stems from energy and supply shocks, such as the current oil price fluctuations between $90 and $100 due to the stalemate in US-Iran negotiations. The geopolitical premium in the Strait of Hormuz is pushing up energy prices, putting upward pressure on inflation and supporting the bottom of US Treasury yields. The current contradiction lies here: the overall economy is very resilient, but residents' perceptions are poor. The Michigan Consumer Sentiment Index has fallen to a historic low, prices are rising faster than wages, and 71% of voters disapprove of Trump's handling of the cost of living. This significant disconnect between economic data and residents' perceptions is the biggest source of uncertainty in the market with the midterm elections approaching.

Geopolitical factors determine inflation expectations; the US and Iran are locked in a tug-of-war negotiation.

Iran hopes to restart the old framework and secure sanctions relief through Qatar's mediation; Trump insists on his bottom line on the nuclear issue, retaining the option of military strike. Neither side is under pressure to compromise immediately, and crude oil prices are likely to fluctuate widely between $90 and $100. The persistent geopolitical premium provides a floor for the inflation premium on US Treasury bonds. Unless there is a breakthrough in diplomacy or an escalation of military conflict, it is unlikely that 10-year US Treasury bonds will break out of a one-sided trend and will maintain a range-bound trading pattern. There is also a hidden risk: the upward yield spiral is gradually eroding the credit market. While publicly disclosed credit spreads appear stable, a large number of borrowers with weak credit ratings are shifting to the private lending market, masking the true risks; CCC-rated junk bond yields have exceeded 15%, and the lagged effects of high interest rates will gradually transmit to commercial real estate and leveraged loans. Sustained high interest rates will slowly suppress economic resilience, laying the groundwork for a subsequent reversal in economic expectations.

US Treasury Trading Tactics: Range-bound trading strategy, aiming to profit from duration at higher levels.

Currently, the 10-year US Treasury yield is in the 5.25%-5.30% range. Buying bonds at higher yields is advisable. Rising yields lead to falling bond prices; when yields reach the upper end of the range, the market has fully priced in economic resilience and geopolitical inflation risks, limiting further upside potential. This presents an opportunity to go long on US Treasuries, betting on a price increase due to falling yields. The 2-year US Treasury yield, as a leading indicator of the Fed's interest rates, suggests that a yield close to or above 5% implies the Fed needs to raise rates five more times. Therefore, when short-term yields rise above 5%, it indicates the market has fully priced in higher interest rates for an extended period. However, it's unlikely the Fed will raise rates five times. If economic data weakens, expectations for rate cuts will resurface, making short-term bonds more volatile. Regarding the trading opportunities in gold as US Treasury yields fall, gold is a non-interest-bearing asset, and the real interest rate is the core pricing factor: higher real yields increase the opportunity cost of holding gold, leading to capital inflows into US Treasuries and putting downward pressure on gold prices; conversely, when real yields turn downwards, gold's attractiveness increases, and oversold precious metals see a recovery window. The recent oversold condition of gold is rooted in the continued rise in real interest rates on US Treasury bonds. However, it's important to note that gold is not driven solely by interest rates: geopolitical conflicts between the US and Iran, and continued gold purchases by global central banks, provide underlying support for gold prices, which explains why gold prices did not fall sharply in the previous high-interest-rate environment.

Key indicators to track and observe in order to identify macroeconomic turning points.

In the coming period, it's crucial to continuously monitor US economic data to determine if there's a turning point in economic resilience, as this directly impacts the direction of US Treasury bonds and gold prices. For example, the US non-farm payroll data is paramount, and a slight decline is expected this time. Next is the manufacturing data: the Dallas Fed Texas Manufacturing Survey, which reflects the region's high weighting in the oil and gas industry and is affected by both Iranian geopolitical tensions and oil prices, providing insights into the energy sector's impact on US manufacturing. US PMI and European PMIs will also be important. Speeches by Fed officials and T-bill Treasury auctions will help assess the market's ability to absorb US Treasury supply. Finally, consumer confidence, wages, and CPI will be key indicators, focusing on inflation stickiness and consumer spending power. While the overall economy is currently strong, consumer sentiment is extremely poor. A significant decline in consumption could quickly reverse market expectations of an overheated economy. Simultaneously, credit market indicators such as private equity default rates and CCC junk bond yields should be monitored to see if high interest rates are triggering credit risk. If credit risk spreads, the market will quickly trade recessionary expectations, leading to a decline in US Treasury yields and a stronger rebound in gold prices.

Trading Insights and Risk Warnings

The current macro environment is complex, characterized by strong aggregate demand, weak market sentiment, and geopolitical disturbances. US Treasury yields are fluctuating between 5.15% and 5.25%. Tactically, we should wait for the 10-year yield to rise to the 5.25%-5.30% range to buy bonds at the bottom. Gold, on the other hand, is in an oversold phase, suppressed by high real interest rates. At this stage, the focus should be on waiting for a turning point; avoid premature bottom-fishing. The best trading window will appear when US economic data disproves the "overheating expectation," and long-term US Treasury yields fall from their highs, while real interest rates decline. At that time, precious metals like gold, which have previously been oversold, will see a recovery. Meanwhile, we should closely monitor the progress of US-Iran diplomacy. Sudden escalations of geopolitical conflicts can bring impulsive price movements, but volatility will increase dramatically; risk management should be prioritized over returns.