PIMCO: “US 10-year Treasury bond interest rate likely to reach 6%”

Rising oil prices, inflation and concerns about massive national debt have prompted warnings that the yield on US 10-year Treasury bonds risks reaching 6% for the first time since 2000.

Daniel Ivasin, Chief Investment Officer (CIO) of Pimco, the world's largest bond management company, told the Financial Times (FT) on the 11th (local time) that investors such as hedge funds are having to cut losses on bond investments that have suffered losses due to the strong bond selling over several weeks, and that there is a possibility that the interest rate on 10-year U.S. Treasury bonds, currently at 5.26%, will rise sharply further.

"It's certainly possible for that to happen, even from a short-term trading perspective. Some of the moves we've seen in recent weeks are related to negative technical factors, stop-loss volumes from platform hedge funds and other leveraged investors. It could actually reach that level (6%)," he said.

He expressed concern that a sharp rise in government bond interest rates could increase the burden of mortgage loans on U.S. households and cause a serious blow to risky assets in general, such as stocks.

If government bond interest rates rise, a vicious cycle may occur in which real estate investment trusts and other companies sell bonds.

Investors are concerned about persistent inflation due to oil price instability, massive borrowing by artificial intelligence (AI) companies, and solid economic growth prospects.

CIO Vasin Lee said, "If the U.S. 10-year Treasury bond interest rate exceeds 5.5%, risk asset markets such as the credit market and stock market will show significant weakness," and added, "The bond issuance interest rate of companies with the lowest credit ratings has soared to 17% this month, reaching the highest since May 2020."

He also expressed concern that rising U.S. Treasury yields would cause problems to emerge in commercial real estate at a slower pace.

He said, “If interest rates rise above a certain level, investors who want to confirm high interest rates will eventually turn to buying government bonds, which will act as a factor limiting the upper interest rate,” and suggested diversifying investments into overseas bond markets such as Australia, the United Kingdom, Canada, and Germany, rather than focusing only on U.S. Treasury bonds.