Over the past two years, Wall Street investors have been optimistic about U.S. Treasury bonds, but the results have been disappointing, and now investor sentiment has become more cautious.
According to a report by The Wall Street Journal on Monday, in recent weeks, fund managers have been selling off U.S. Treasuries, and savers have withdrawn from long-term bond funds, pushing the two-year yield on Treasuries to the upper limit of its range.
Investors remain concerned that the bond market environment may further deteriorate, said Ed Al-Hussainy, global interest rate strategist at Columbia Threadneedle Investments:
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Cash yields have exceeded 4%, which is a benchmark that is hard to surpass.
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Skepticism about U.S. Treasuries represents a significant shift on Wall Street; in recent years, investors generally believed that interest rates would struggle to rise significantly. But now, an increasing number of investors are beginning to believe that the economy can withstand higher rates, and the threat of inflation will persist.
An earlier article from Wall Street Insight pointed out that the number one theme in the global market for 2025 is &#34;higher for longer&#34; interest rates returning. The chief economist of Apollo stated that, whether from the Federal Reserve's short-term expectations, long-term expectations, or market expectations, U.S. interest rate expectations are on the rise, with the FOMC expecting the federal funds rate to remain at current levels by the end of 2026.
These bets have impacted bond returns. As of December 26, the ICE BofA U.S. Treasury Index's annualized yield was only 0.4%, far below the 5.2% yield of short-term Treasury bills. According to FactSet data, BlackRock's iShares 20+ Year Treasury Bond ETF has seen an outflow of $5.3 billion this month, potentially setting a record for the largest monthly outflow in the fund's 22-year history.
The rise in Treasury yields has pushed up a range of borrowing costs. The 30-year mortgage rate has approached 7% again, further suppressing the real estate market, and pressure in the bond market may also squeeze risk assets.
Looking ahead, Yung-Yu Ma, chief investment officer at BMO Wealth Management, stated:
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If Trump stimulates inflation through tariffs and fails to control the increase in Treasury supply by cutting the budget deficit, the 10-year yield could easily break 5%.
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More and more investors are beginning to believe that the U.S. economy can withstand higher interest rates, and the threat of inflation will persist. Analysts believe that if Trump stimulates inflation through increased tariffs and fails to control the increase in U.S. debt supply by cutting the budget deficit, the 10-year yield could easily break above 5%

- Over the past two years, Wall Street investors have become increasingly cautious about U.S. Treasury bonds, following disappointing outcomes despite initial optimism.  
- Recent sell-offs have pushed the two-year Treasury yield to its upper range, with concerns that the bond market environment may worsen, as cash yields exceed 4%.  
- This shift in sentiment reflects a significant change in Wall Street's outlook, with expectations for higher interest rates persisting, potentially impacting borrowing costs and the real estate market.

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