Long-Term Bond Repricing Just Beginning! PGIM Expects 30-Year U.S. Treasury Yield to Reach 5.5%

The yield on 30-year U.S. Treasury bonds has returned above 5%, prompting markets to reassess the appropriate level for long-term bond yields. Gregory Peters, Co-Chief Investment Officer of Fixed Income at PGIM, believes the repricing of long-dated U.S. Treasury yields has only just begun. With corporate bond issuance fueled by AI investments and the U.S. Treasury continuing to expand debt supply, the 30-year U.S. Treasury yield has further upside potential, and 5.5% could become an attractive new benchmark.

This week, the U.S. Treasury is auctioning $22 billion in 30-year bonds. Markets typically demand higher yields as risk compensation ahead of auctions, pushing the 30-year Treasury yield up 9 basis points this week to 5.07%, approaching the year’s high of 5.2% reached in May.

In an interview with Bloomberg Television on Thursday (9th), Peters stated that the market's repricing of long-term yields is 'just beginning, not nearing its end,' and that long-term yields will continue to face upward pressure. He pointed out that the AI infrastructure boom is driving hyperscalers—large cloud service providers—to continue borrowing, while the U.S. government's massive debt issuance adds further upward pressure on long-term Treasury yields.

He expects the steepening of the U.S. yield curve to accelerate over the coming quarters and years. As debt levels continue to rise, long-term bond yields will face even greater upward pressure.

Compared to long-term bonds, Peters sees greater investment value in intermediate- and short-term U.S. Treasuries. With yields already at relatively high levels, investors can achieve better returns while reducing duration risk by shortening their holding periods. Therefore, intermediate- and short-term bonds are more attractive than long-term bonds.

PGIM had already adjusted its interest rate forecast ahead of the Federal Reserve’s (Fed) June meeting, shifting from an initial rate cut expectation to predicting three rate hikes (75 basis points) this year. At the June meeting, under Chair Kevin Warsh, the Fed held the benchmark rate steady at 3.50%–3.75% and signaled a hawkish stance, prompting markets to reassess interest rate outlooks.

Currently, Overnight Index Swap (OIS) futures reflect approximately 35 basis points of rate hikes this year, with expectations that the Fed could initiate its first hike as early as October. However, Peters believes the market is already very close to a rate hike, with the real difference being whether the Fed acts as early as July.