According to an analyst, the US bond market is said to be “losing its strategic anchor” as 2-year Treasury yields reach their highest levels in 17 years.

The surge in Treasury yields continues to defy expectations and is causing further strain in the U.S. bond market. Yields on the 2-year Treasury note reached 5.2%, its highest level in over 17 years. This increase in yields is a result of unexpectedly strong retail sales figures and slightly higher-than-anticipated inflation. Market sentiment suggests that the Federal Reserve is unlikely to raise interest rates further, but the resilience of the U.S. economy is leading to the possibility of prolonged elevated rates. Renowned economist Mohamed El-Erian expressed concern over the evolving nature of U.S. Treasuries, suggesting that they are losing their strategic stability. There is currently a shortage of buyers in the Treasury market, and uncertainty surrounding interest rates, rate hikes, balance sheet shrinkage, and the Fed’s monetary policy framework. This could result in price volatility and potentially destabilize financial markets and the economy.