Amid a recent sharp sell-off in U.S. Treasuries that has driven yields higher, Steven Blitz, Chief U.S. Economist at TS Lombard, has warned that the yield on the 10-year U.S. Treasury note could climb to 6%, suggesting the long-term bear market for government bonds may only be in its early stages. In a research report released Wednesday, Blitz noted that Treasury yields have broken out technically from a long-term "triangle consolidation pattern," indicating a potential rise to around 5.5%. However, he cautioned that this is "only an initial target, not the final destination." Blitz stated, "I have long been telling clients that the world has changed, and markets are always slow to accept this. Even after this round of selling, the market mindset remains bullish—'bear traps' are real." As of the latest update, the yield on the 10-year U.S. Treasury note is approximately 4.57%, having risen about 30 basis points in just the past month. This warning comes as new Federal Reserve Chair Kevin Warsh officially takes office on Friday, facing an exceptionally challenging policy environment. Blitz argues that if Warsh keeps interest rates unchanged at the June meeting amid rising inflation risks and accelerating bank loan growth, it would essentially amount to an easing of monetary policy. Blitz pointed out, "Even if economic growth remains stubbornly stable and far from surging, if broad inflation risks are rising and the Fed still does not hike in June, that is inherently a form of easing." The economist listed several factors that could push U.S. Treasury yields even higher: sustained heating up of real economic growth, bank loan growth running at twice the core inflation rate, and the U.S. reliance on foreign capital to finance the federal fiscal deficit and domestic capital expenditures. With the U.S. net national savings rate at zero, achieving funding balance must be accomplished through either higher inflation or higher real interest rates. For stock investors, Blitz offered a more severe assessment, suggesting that the multi-year bull market may have reached its end. He wrote that as bond yields rise, bonds are beginning to offer "compensatory appeal" relative to stocks, marking the start of "a prolonged adjustment period for overvalued equity markets." As concerns about intensifying inflationary pressures have boosted expectations for the Fed to tighten monetary policy, U.S. Treasury yields have recently risen accordingly. Among those holding the view that this wave of selling in U.S. Treasuries is not over is Padraic Garvey, Global Head of Rates and Debt Strategy at ING. For months, many investors have considered a benchmark 10-year Treasury yield of 4.5% as an attractive entry point. However, once yields decisively broke above that level, market participants quickly adjusted their expectations and began reassessing the next level where buyers might be willing to step in. On this, Garvey commented, "The core question now is whether investors will enter at current levels. In my view, this selling wave is likely to continue spreading." Garvey noted that multiple underlying drivers are still fueling the selling, making it highly probable that the 10-year Treasury yield will subsequently move up to 4.75%. A sustained rise in benchmark bond yields would impact the U.S. stock market, as higher borrowing costs continue to increase pressure on business operations and household consumption. Inflation remains the core driver influencing market trends. Recently released data on consumer and industrial producer prices have both exceeded market expectations, confirming that the pace of price declines is much slower than previously anticipated. As more inflation data for May and beyond are released, the industry widely expects inflation levels to remain elevated. Once bond market investors conclude that inflation will persist at high levels or even re-accelerate, they will demand higher bond yields to offset losses from diminished purchasing power. Garvey warned that even a modest rise in inflation expectations to the 2.6%–2.7% range could significantly drive up bond yields, easily pushing yields another 10 to 30 basis points higher. Steven Barrow, Head of G10 Strategy at Standard Bank in London, also predicted last week that, influenced by persistent inflation, the 10-year Treasury yield could reach 5% this year. Discussing the recent range of U.S. bond rate movements, Barrow said, "Most people just assume that what has happened in the past will continue." "The market's ability to hold a 4.5% yield currently, and the fact that we haven't yet sustained a move to 5%, does not mean it won't happen in the future." Barrow stated that his bearish conclusion on bonds reflects his years of focus on supply-side inflationary pressures. He listed a series of factors, including global supply chain bottlenecks, the ongoing impact of climate change, and restrictive immigration policies limiting labor supply, all of which are pushing up consumer prices and, in turn, U.S. Treasury yields. However, some institutions hold opposing views. Global asset management giant Vanguard Group continues to bet on U.S. Treasuries, believing that within the $31 trillion U.S. Treasury market, the 10-year yield is approaching the upper bound of its expected range. Sara Devereux, Global Head of Fixed Income at Vanguard, stated ahead of the firm's latest outlook report, "In the U.S. rates market, we maintain a long duration bias; the current 10-year Treasury yield is near the top of our expected range." Vanguard noted, "Persistent above-target inflation and an improved labor market outlook have led us to slightly raise our expectations for the monetary policy path, increasing the likelihood that the Fed will keep rates unchanged through year-end." The firm added that the prospects for future easing are "more limited and somewhat delayed." Regarding the potential for rising U.S. Treasury yields to suppress the U.S. stock bull market, Max Kettner, Chief Multi-Asset Strategist at HSBC Holdings, believes that despite rising bond yields, there is still room for further stock market gains due to a strong recovery in corporate earnings and still-low market positioning. Kettner stated that he currently holds an "extremely bullish" stance on stocks. He noted that corporate earnings have experienced a V-shaped recovery, "moving higher from a high base." He added that the performance this earnings season has been "crazy, just crazy," with about 87% of companies beating market expectations, comparable to the post-pandemic economic reopening period. Meanwhile, in Kettner's view, current stock valuations have not yet reached bubble levels. He pointed out that overall investor positioning remains light, and whether from systematic or active funds, capital flows are "still far from signaling a sell." Kettner believes that current U.S. Treasury yields do not yet pose a threat. However, he also acknowledged that if the Fed hikes rates more than once, "the market might find it a bit hard to handle." He stated that interest rate risk primarily stems from the possibility that economic growth could be stronger than expected.