Bond yields are “far from” peaking despite a surge in recent days, Deutsche Bank analysts have said.
According to the bank, traders had been speculating that yields would look attractive once the Federal Reserve cut interest rates further.
However, expectations for any such cuts in 2025 have effectively been wiped after strong US jobs data last week.
This has left rates with further to climb to match historic risk premiums against cash yields, Deutsche said in a note, adding “the great yield adjustment is still underway”.
US 10 and 30-year Treasury yields have jumped by 38 and 35 basis points over the past month respectively, fueled most recently by Friday’s non-farm payrolls report.
“Very low recession odds [and] a Fed unlikely to hike implies the next move higher in yields should still be led by steeper Treasury curves,” analysts noted.
Yields on 10 and 30-year US bonds could be up to 60 and 90 basis points too low currently against historic metrics as a result, the bank added.
European bonds have also faced a sharp sell-off in recent days, which BCA strategist Mathieu Savary attributed to higher US rates “sucking capital” away.
“European yields will only stop their ascent once the US bond market calms down,” Savary said.
“This will demand lower equity prices and an abnegation of profligacy by the incoming Trump administration.”