BMO Strategist Says 30-Year Treasury Yield Hitting 6% Is Unavoidable

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Earl Davis of BMO Global Asset Management said he believes it is "unavoidable" that the U.S. 30-year Treasury yield will break above 6%, and it could happen as soon as October, because volatility in the bond market is creating a feedback loop that pushes yields even higher.

"Why do I say it's unavoidable? Markets can typically focus on only one thing at a time, whether that's inflation, economic growth, or other factors affecting interest rates," Davis said Monday. Investors are now "genuinely focused on rates themselves."

Davis said this means that with U.S. Treasury yields already at multi-year highs, market volatility will accelerate bond selling and push the 30-year Treasury yield toward 6%. The head of fixed income and money markets at the BMO-owned asset manager said, "We are therefore highly confident we will see 6% — and not only that, I think there is a strong possibility we see that level this month, in October."

Davis's comments underscore the historic surge in yields across the Treasury curve, with long-dated bond yields up nearly 50 basis points since the end of August. On Monday morning, the 30-year Treasury yield broke above 5.65%, approaching the highest level since 2002 of 5.69% touched on October 1.

Davis said the selloff is part of a global phenomenon, not a move unique to the United States. He sees two potential factors that could reverse the Treasury decline: first, Democrats winning both the House and the Senate, creating a divided, gridlocked government that shifts the market's focus back from inflation to economic growth; second, direct intervention in the bond market by the U.S. Treasury after the 30-year Treasury yield breaks above 6%.

"We are in a bearish trend, but not in a bear market," he said. Asked how intervention would be implemented, Davis was clear: "Just buy bonds. The Fed and the Treasury buy bonds together. I think that is unquestionably quantitative easing."

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