Income is back in bonds. According to Pimco, longer-maturity U.S. Treasuries sit close to their highest levels since 2002; the 10-year is near 5.25%, while the 30-year is roughly 5.65%. The slide in prices since mid-August has come alongside resilient U.S. activity, a surge in AI-related infrastructure spending, and higher energy costs that have kept inflation sticky and left room for more Fed hikes this year.
Zooming out, Bloomberg data show the Bloomberg Global Agg Treasuries index yields above 4%, with the average yield sitting at the highest since September 2000 as of Oct. 5. And it has been rough lately: September marked the weakest performance for U.S. Treasuries since October 2024, as a Bloomberg measure fell roughly 2.2%.
Pimco links firm energy prices to persistent inflation, which it says keeps alive the chance the Fed raises rates again this year. On the fiscal front, the manager highlights the U.S. and France as having more challenging debt paths. It also flags the UK, Italy, and Japan as vulnerable, and says Japan's vulnerability has grown because recent policies boost deficits, though it still judges all three as sustainable under current fiscal plans.
The firm sees the possibility of added fiscal stimulus as the key force that could push yields higher and make the curve steeper. It also says the volume of corporate borrowing tied to the AI boom may play a role. While "fiscal concerns will continue to drive episodic market volatility across global markets," Pimco adds that "investors are getting higher sovereign bond yields than a year ago to help compensate for these risks." If governments follow through on belt-tightening, such as the UK's planned budget measures, yields could have room to decline.
When bond managers call yields attractive, it is worth knowing what they are comparing them to. Market Briefs covers fixed income free every morning.
Tiffany Wilding and Andrew Balls write that "Attractive starting yields - and the income they can offer - provide a meaningful mitigant against inflationary tail risks while preserving the potential for bonds to hedge a fading AI capex impulse or a shock to growth." The Newport Beach, California based firm also says building a bond mix across developed and emerging markets can diversify away from single-country fiscal shocks.
In the U.S., Pimco says it still likes five- to seven-year Treasuries and is "becoming more constructive on longer-dated bonds as yields rise." The firm calls the market "value for patient investors with an intermediate time horizon." Last month, Chief Investment Officer Dan Ivascyn said long-term Treasury yields above 5% are prompting Pimco to reduce its underweight in longer maturities. Over the past month, yields from the 2- to 10-year area have climbed by upwards of 50 basis points, putting shorter-dated benchmarks near 5%.
Bigger coupons and better starting yields change the math. Pimco's takeaway is straightforward: income is attractive, diversification across DM and EM can help manage fiscal flare ups, and any real fiscal tightening could pull yields lower from here. For everyday investors, that setup means the bond market is no longer just a shock absorber in a portfolio - it is paying meaningful cash while you wait.
High yields mean income now and risk if the economy turns. Get the free Market Briefs daily newsletter and weigh both.
