US Bond Market Under Fire as Yields Near 19-Year High

The US bond market is facing significant pressure due to rising yields and geopolitical tensions. The 30-year Treasury yield has reached a 19-year high of 5.3 per cent, driven by inflationary pressures and the ongoing conflict in Iran.

US Treasury Secretary Scott Bessent has attempted to stabilise yields through bond-buying operations, but these efforts have faltered so far. President Donald Trump has hinted at intervention, including military action, suggesting that US power underpins the bond market.

Commodity strategist Jeffrey Currie points out that 'crack spreads' - the cost of transforming crude oil into refined products like diesel and petrol - are a critical concern, not just crude prices. These spreads have hit $102 last week, four to six times typical levels, due to a refining shortage caused by Ukrainian strikes on Russian plants, Iranian actions in the Middle East, and chronic underinvestment.

Bank of America strategist Michael Hartnett warns that if the 30-year yield breaks the 'Maginot Line' of 5 per cent, it risks a US credit event and could jeopardise the AI spending boom crucial to American economic growth. Société Générale strategist Albert Edwards notes that while rising yields will strain financial systems, he doesn't foresee this alone ending the AI-driven equity bull market.

Edwards cautions, however, that elevated investor optimism and high valuations, especially against rising bond yields, create significant vulnerability to 'bad' news and lay the groundwork for a potential market 'accident'.