US Treasuries Decouple from Geopolitical Narrative, Wall Street Warns of Persistent High Interest Rates

The US and Iran are close to reaching an agreement to reopen the strait, which has driven down crude oil prices, and the yield on the US 10-year Treasury bonds slightly declined after nearing 4.70% last week. However, Bloomberg reported that strategists from institutions such as ING, Goldman Sachs, and Barclays warn that even if inflationary pressures triggered by geopolitical conflicts recede, long-term interest rates will struggle to fall significantly. The forces driving yields upward have become independent of the conflicts, with the market repricing structural issues with the US economy.

Data indicates that this round of yield spikes are mainly driven by real yields after accounting for inflation, rather than inflation expectations. Barclays' Jonathan Hill pointed out that the US 10-year breakeven inflation rate is still about 50 basis points lower than its 2022 high. ING's Padhraic Garvey stated that the US Treasury yield breaching the 4.5% increase fully comes from the real yields. This means that geopolitical tensions easing can only suppress inflation expectations, but cannot lower the stubbornly high real interest rates.

The deteriorating fiscal deficit and debt pressure in the United States are the core drivers. The tax reform promoted by Trump will further increase the scale of debt and the supply of Treasury bonds. Both Goldman Sachs' Phillip Lee and JPMorgan's Jamie Dimon indicated that concerns over government borrowing size and debt sustainability are compelling the bond market to demand higher long-term holding yield compensations.

The wave of artificial intelligence investment has become a new variable in driving up interest rates. Technology companies have issued a large amount of their own debts to build data centers, which in the short term has exacerbated resource consumption and inflationary pressures. The growth expectations brought by AI have also led to a shift of funds流向stock markets, raising the opportunity cost of bonds.