The US Treasury market is facing multiple compounding pressures. Long-dated Treasury yields continue to climb, buying interest has yet to materialize, and the growing divergence between bonds and stocks is drawing increasing attention.

Rich Privorotsky, head of Goldman Sachs' trading desk, stated bluntly that long-dated US Treasuries "remain completely unloved." Although the latest PCE data came in below expectations, slightly reducing the likelihood of an October rate hike, this has had virtually no substantive impact on long-dated Treasury yield movements — rate hike expectations for short-term rates have largely been priced in, and the real pressure remains concentrated at the far end of the yield curve.

Meanwhile, volatility expectations for long-dated Treasuries have clearly decoupled from the anxiety in the short-term rate market. Privorotsky concluded: "This state urgently needs to settle down."

The rapid rise in yields is also triggering multiple warning signals based on historical data. Florian Roger of BNP Paribas CIB said he has identified 5.5% as the critical threshold at which the US 10-year Treasury yield exerts material pressure on the stock market. "We are already very close, at which point equity valuations will begin to appear too high," he said.

Bloomberg macro strategist Simon White cautioned that investors should not be misled by superficially low valuations — looking at the historical trajectory of Treasuries themselves, yields may still not have bottomed out.

Long-dated Treasuries lack buyers, bond market rebound has yet to arrive

The 10-year Treasury yield has risen to 5.34%, yet this level has still not triggered obvious buying. Although Treasury valuations appear attractive from multiple dimensions, wait-and-see sentiment continues to dominate the market.

Analysis by Bloomberg macro strategist Simon White shows that comparing the 10-year Treasury yield with the average of US nominal GDP and the 10-year German bund yield, excluding the two special periods of the pandemic and the global financial crisis, the two historical trajectories closely align, and the current Treasury yield is now significantly above this average.

At the same time, the 10-year yield is more than 60 basis points above a fair value model constructed from global central bank rate hike cycles, the yield curve, oil prices, and policy rates, yet neither foreign nor domestic buying has meaningfully entered the market.

Stock-bond relative value is sending a similar signal. The equity risk premium, measured as the difference between the trailing 12-month earnings yield and the 10-year Treasury yield, has fallen to its lowest level in over two decades, meaning the attractiveness of stocks relative to bonds is at a historic low. Even on a forward earnings basis, the metric is approaching its historic low from 2025.

White noted that adjusting yields by stripping out the term premium provides a fairer comparison, and Treasuries remain somewhat attractive on this basis, but the advantage has narrowed.

Historical mean reversion shows oversold conditions have not yet fully played out

Although the valuation metrics above point to Treasuries being relatively undervalued, another simpler analytical framework White employs — historical mean reversion of annual total returns on Treasuries — gives a more cautious signal.

This framework shows that annual Treasury returns oscillate around the mean over the long term, and during downturns tend to overshoot below the mean. Currently, annual Treasury returns have fallen back to near the trend mean, but historical data indicates that this position does not necessarily mean a bottom has formed. Based on over 50 years of historical data, in cases where returns over the past six months have continued to decline and fallen back to near the mean, approximately three-quarters of cases show that returns will decline further three months later.

The trajectory of real yields also supports this assessment. This round of nominal yield increases has been primarily driven by real yields, with inflation breakeven rates remaining relatively tame. White's leading indicator for 10-year real yields, which incorporates excess liquidity, the pace of global central bank rate hikes, and the Fed policy rate, among other factors, suggests real yields still have room to rise further. The indicator leads real yields by approximately three to four months.

Fiscal pressures and liquidity risks cannot be overlooked

Potential buyers also face the daunting US fiscal situation before entering the market.

Among major emerging markets and developed economies, the US fiscal deficit as a share of GDP ranks among the highest globally, behind only Brazil, Poland, Hungary, and Colombia. Excluding interest expenses, the US primary fiscal deficit also ranks at the top globally, tied with the UK, underscoring the fiscal pressure.

As yields continue to climb, market risks could also become self-reinforcing. Rising yields push up volatility, which in turn affects margin requirements and Treasury risk exposure limits, and historically rising volatility has often been accompanied by deteriorating liquidity in the Treasury market.

White also noted that when the 10-year yield consistently stays above 5.25% to 5.50%, the correlation between Treasuries and stocks has historically tended to turn persistently positive, further weakening demand for Treasuries as a portfolio hedging tool.

Expectations of government intervention are rising, but fall short of a buy case

Amid these compounding pressures, expectations for policy intervention are also heating up. It is reported that the US Treasury Department this week hired Jefferies chief market strategist David Zervos as an advisor, a move that may not be coincidental. In an interview, Zervos said the Treasury is reclaiming the initiative in debt maturity management and stressed that "this process needs to be closely watched."

However, White cautioned that while expectations of government intervention may increase the risk of shorting, they are not sufficient to constitute a compelling buy case. Once the market forms an expectation of a government "backstop," it could find itself in a dilemma where shorting is difficult and going long with confidence is equally challenging, and investors still need to remain vigilant.

The core contradiction in the current Treasury market is this: valuations have improved somewhat, but multiple constraints at the technical, fiscal, and liquidity levels have yet to be resolved. Whether yields are close to a genuine bottom remains to be further confirmed.