We have started the new year with the 10-year Breakeven rate breaking above 2% and reviving the reflation story. Now that Democrats are about to secure the majority in the US Senate, we can only expect more bearish sentiment in Treasuries which will inevitably push yields higher.
Today, the 10-year US Treasury yield has broken above the pivotal 1% level. Suppose a Democratic win in Georgia is confirmed. In that case, yields could continue to rise and break above 1.1% on their way to 1.5% as many have pointed out. Besides these critical levels, I feel it's essential to highlight that the bond market's pain is real and here to stay.
The US yield curve has been steepening steadily since August until today. Since the beginning of the year, the 5s30s widened by around 10bps. The movement has been concentrated in 30-year Treasuries yields inflicting a loss of about 2% for bondholders in only three trading days.
If 30-year yields close the year with at 2.5% rising about 70bps, the loss that bondholders would face is approximately 15%.