Is the Window to 'Bottom-Fish' US Treasuries Opening? PIMCO: Rising Long-Term Yields Could Offer Buying Opportunities

As long-end US Treasury yields continue to rise, PIMCO, one of the world's largest bond fund managers, sees an opportunity to increase positions.

On August 24, Bloomberg reported that PIMCO believes as long as the US economy does not experience an unexpected downturn, the term premium on long-term US Treasuries will remain high, and further yield increases will provide better buying points for long-term investors. The yield on 30-year US Treasuries has currently risen to near 20-year highs, and sustained pressure on the long end has further steepened the US Treasury yield curve.

PIMCO stated that higher yields not only mean higher interest income but also create opportunities for rolling down the yield curve and carry trades.

This assessment comes amid significant volatility in the US Treasury market. US Treasury Secretary Bessent unexpectedly expanded the long-term Treasury buyback program last week, briefly boosting market sentiment, but yields quickly resumed their upward trajectory. With the US government debt scale exceeding $40 trillion and fiscal financing pressures continuing to rise, long-end US Treasuries still face considerable uncertainty.

Elevated Term Premium, Long-Term Yields Returning to Historical Norms

PIMCO believes that although yields have continued to climb recently, the yields on US long-term Treasuries and other major sovereign bonds remain roughly around historical averages over a longer cycle.

In PIMCO's view, the reason current yields appear "abnormally high" is mainly because investors have become accustomed to the prolonged low-interest-rate environment following the financial crisis. As this special period ends, the return of long-end yields to historical norms does not mean that bond valuations have lost their appeal.

More importantly, in the absence of major economic shocks, the term premium is likely to remain elevated. This means that even if yields continue to rise in the future, the current higher starting yields can provide a better return foundation for long-term investors.

Fiscal Pressure Remains a Risk, But High Yields Also Provide a Safety Cushion

Fiscal expansion and deteriorating market expectations for US Treasury supply remain the primary risks driving long-end yields higher.

This concern is echoed by other institutions. According to Bloomberg, JPMorgan and PGIM warned that decreased predictability in the US Treasury Department's debt management strategy could further push up government financing costs; Ray Dalio urged investors to reduce bond holdings and warned that US debt risks could worsen further within the next three years.

However, PIMCO believes that rising yields are not solely negative. During the sharp decline in the bond market in 2022, investors faced excessively low starting yields, where interest income was insufficient to offset price losses caused by rapidly rising rates. Today, starting yields adjusted for inflation are higher, and coupon income is expected to provide a thicker buffer.

Therefore, PIMCO maintains a positive stance on US Treasuries: by historical standards, current yield levels are becoming increasingly attractive; if long-end yields continue to rise, it could instead become an opportunity for long-term investors to add to their positions.