Pressure in the U.S. Treasury market continues to rise, according to a Bitunix analyst note cited by BlockBeats on Sept. 30. The 30-year Treasury yield climbed above 5.61%, the highest since 2002, while the 10-year yield moved close to levels last seen in 2007.
The report said higher energy prices, large-scale corporate debt issuance, and market expectations for further Federal Reserve rate hikes have together pushed up long-end borrowing costs.
Crowded short positioning has raised reversal risk
Short positions in 5-year and 10-year Treasury futures have continued to build, creating a new asymmetric risk in the market. If upcoming Personal Consumption Expenditures, or PCE, inflation data or U.S. nonfarm payrolls come in below expectations, concentrated short covering could send yields down quickly.
Shift in Treasury buying structure adds liquidity stress
The buying structure in the Treasury market is also changing. Hedge funds now hold $2 trillion of U.S. Treasuries, accounting for about 7% of marketable Treasuries, a record high.
Those funds provide liquidity through cash-and-futures basis trades, but the strategy depends heavily on short-term repo financing and leverage. When markets are calm, the trades can improve pricing efficiency. If yields swing sharply, financing conditions tighten, or margin requirements rise, deleveraging could trigger forced selling and add to liquidity pressure in the bond market.
Energy supply has improved, but price risk remains
In energy markets, JPMorgan said Middle East crude transport volumes have recovered to about 98% of pre-conflict levels, but refined product flows have recovered to only 58%, showing that the supply chain has not fully normalized.
The United States has again proposed a 40 million-barrel Strategic Petroleum Reserve loan program, though its actual effect will depend on whether companies choose to borrow. A previous program of the same size ended with only about 500,000 barrels borrowed. That suggests a headline supply buffer does not necessarily translate into actual new supply, leaving energy prices exposed to geopolitical risk.
Focus has shifted to inflation, rates and leverage tolerance
Overall, the analyst said market attention is now centered on whether inflation will remain persistent and whether leverage risk can stay under control in a high-rate environment.
If economic data stay strong, expectations for more rate hikes and pressure from bond supply could continue. If data weaken, crowded short positions could unwind faster. For risk assets, the key issue is not only the direction of yields, but also the speed of rate moves and whether markets can absorb the liquidity shock from concentrated position covering.