Treasury yields are 'really, really high,' but can come down soon, Bessent's new adviser says

• The 10-year and 30-year Treasury yields reached multidecade highs, with Brent crude oil climbing 38% since the start of the U.S.-Iran conflict, contributing to rate pressure
• Fed funds futures traders see an 82% probability of another rate increase at the December meeting, following the Fed's first rate hike in three years last month
• Zervos notes the yield surge is a global phenomenon affecting Germany, France, Italy, and Japan, not a U.S.-specific problem, with corporate AI spending adding to upward pressure on rates

Summary

David Zervos, newly appointed counselor to Treasury Secretary Bessent, stated that current Treasury yields have reached historically elevated levels but are likely to decline soon. The 10-year and 30-year U.S. Treasury yields recently hit 24-year highs, with the 10-year currently at approximately 5.233%.

Key Factors Driving Yields:

Zervos identified several contributors to the surge in global bond yields:

• Central bank expectations for interest rate hikes
• Increased corporate borrowing for artificial intelligence infrastructure development
• Energy price shock from U.S.-Iran conflict, with Brent crude climbing 38% since the conflict began

Market Context:

The Federal Reserve cut rates for the first time in three years last month but has signaled potential rate increases before year-end. CME FedWatch data shows an 82% probability of a rate hike at the December meeting. Rising Treasury yields have pressured consumer borrowing, particularly impacting home mortgage rates.

Outlook:

Zervos emphasized this is a global phenomenon affecting Germany, France, Italy, and Japan, not a U.S.-specific issue. He characterized the current pressure as temporary, expecting relief once the energy crisis resolves. While acknowledging real yields are "really, really high by any historic standard," he maintained that longer-term rate and inflation expectations remain stable.

The Treasury official framed AI infrastructure spending positively for the economy despite its short-term impact on yields, referring to it as "sovereign infrastructure" following President Trump's terminology.