Investors are expecting the 10-year U.S. Treasury yield to break above the 16-year high of 5% reached in October due to concerns about U.S. inflation.

Bond yields have increased recently due to ongoing inflation, dampening expectations on the Federal Reserve’s ability to reduce interest rates without exacerbating consumer costs.

The yield on the benchmark 10-year note reached a five-month high of 4.70% last week, up 80 basis points on the year.

Fixed income allocations among global fund managers have dropped to their lowest point since 2003, and bearish Treasury positioning among some hedge funds is at an all-time high.

Inflation is the key to everything, and investors are cautious about Treasury yield levels as rising rates can result in increased borrowing costs for individuals and businesses and tighter financial conditions.

The S&P 500 experienced a sell-off in the second half of 2023 due to a strong increase in rates, but stocks recovered when yields reversed.

Some investors have taken advantage of the weakness in bonds to increase their holdings of fixed income.