US 20-Year Treasury Yield Above 6% Could Trigger $110 Billion in Selling Pressure, Bassman Warns
Summary
- A warning said that if the US 20-year Treasury yield rises above 6%, futures-related hedging trades could trigger $110 billion in selling pressure.
- Harley Bassman said a break above 6% in the 20-year Treasury yield could spark additional selling through hedging trades linked to futures.
- He said the bond market's negative convexity risk has reached levels not seen since 2007 and that selling in the US Treasury market could intensify further.
Forecast Trend Report by Period
If the US 20-year Treasury yield rises above 6%, futures-related hedging trades could unleash selling pressure equivalent to about $110 billion in bond supply, according to a warning from veteran bond strategist Harley Bassman.
On Oct. 13, Bassman said such selling pressure could hit the US Treasury market and called it a "nightmare scenario."
He said a move above 6% in the 20-year Treasury yield could set off additional selling through hedging trades tied to futures. The US 20-year Treasury yield is currently around 5.6%.
Bassman also warned that the bond market's negative convexity risk has reached levels not seen since 2007. Negative convexity refers to the tendency for bond price declines to accelerate as yields rise.
He said selling in the US Treasury market could intensify further if that risk materializes.
JH Kim
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