Dizzying Bond Moves Put 4% Yield in Play to Win Over Investors

Bond traders are bracing for another tumultuous week in which key employment data could push yields on 10-year Treasuries toward 4%, a level that market watchers see luring investors into government debt.

The benchmark US rate rose to within striking distance on Thursday, climbing as high as 3.89%, after an upward revision to first-quarter US economic growth and a drop in initial jobless claims sparked the biggest day for Treasuries in more than three months. Yields for most tenors approached the highest levels seen so far this year, while wagers that the Federal Reserve might cut interest rates this year fizzled.

A wealth of events next week could unleash fresh bouts of selling and lift yields to 4%, not least the release of the first major economic reports for June — including key labor-market data — as well as minutes from the Federal Reserve’s latest meeting. But for bond investors, the question is now whether yields in the 4% neighborhood are attractive, and whether they offer sufficient compensation for the risk that the central bank will fail to get inflation under control.

The 4% level for 10-year yields “will bring in a wave of demand” from investors, said Zachary Griffiths, senior fixed-income strategist at CreditSights Inc.

The research firm sees a 50-50 chance of one additional Fed rate increase at the next policy meeting concluding July 26 — and quarter-point cuts at each meeting in 2024. Even if that scenario doesn’t play out and the Fed is more aggressive, Griffiths sees that limiting any selloff in longer-dated Treasuries.

On the other hand, interest-rate strategists at JPMorgan Chase & Co. ditched their bullish call on Treasuries this week in anticipation of additional cheapening, and Bill Dudley — a former president of Fed’s New York bank — said 4.5% was “a conservative estimate” for the peak in 10-year yields.