A sharp spike in bond market volatility is raising alarm on Wall Street, with investor Ross Gerber warning that rising Treasury yields are pushing the market toward a breaking point.
‘Something Will Break’
The 10-year Treasury yield sat at 5.243%, its highest in 19 years, while the 30-year yield was at 5.553%, its highest in 22 years.
The Gerber Kawasaki Wealth & Investment Management CEO said in a post on X that the 10-year Treasury yield has continued to climb day by day, warning that “at some point something will break” if the trend continues.
The Last Three Times This Happened, Something Broke
Market commentator Bull Theory said the Merrill Lynch Option Volatility Estimate Index, which tracks volatility in U.S. Treasury yields, jumped from around 80 to above 104 in two days — the sharpest move in months.
The index hit an all-time high near 265 during the 2008 financial crisis, spiked again as investors rushed into cash during the 2020 COVID panic, and jumped once more in 2023 when Silicon Valley Bank and several regional banks collapsed.
On Monday, the index closed 6.06% higher at 101.82.
Why This Spike Is Different
The spike isn’t driven by panic, but by higher oil prices, strong growth data, and rising Fed rate-hike expectations pushing yields up together, the commentator said.
Brent crude was up 1.61% at $106.97 a barrel, while WTI futures were trading 1.41% higher at $93.91, at the time of writing, as tensions over the Iran conflict continued to weigh on oil markets.
Traders are now pricing in a 70.3% chance of another interest rate hike in October by the Federal Reserve, per the CME FedWatch Tool, following the Fed’s 25-basis-point increase earlier this month — its first hike since 2023.
Since Treasury yields underpin mortgage rates, corporate borrowing costs and government debt, instability in the bond market rarely stays contained to bonds alone, the commentator added.
Price Action: The iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) closed 0.52% lower on Monday at $89.53 and rose0.07% in extended trading, while the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell 0.88% to $78.62 and climbed 0.09% in after-hours trading.
Benzinga edge rankings indicate the iShares 7-10 Year Treasury Bond ETF has a Momentum score in the 23rd percentile and a negative price trend in the short, medium, and long term.
See More: Top Momentum Stocks
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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