“Anything but bonds.”

That’s been the zeitgeist (or the mantra) for the better part of the last six years.

As an asset class, US Treasurys notched two annual declines over that period, including a record 13% drop in 2022 (illustrated below). They barely rose in 2024 and are on pace for a loss in 2026, although there’s still plenty of time on the clock.

That leaves last year and 2023 as the only years of the post-pandemic era during which Treasurys notched respectable gains.

You’re reminded that 2023 wasn’t exactly a cake walk. It took a furious late-year rally to rescue US bonds from an unprecedented third consecutive annual loss.

From the highs in August of 2020, the most popular US long-end retail product remains down more than 50%. This is shaping up to be the worst month for the ETF since March. It’s down 8% since Ali Khamenei’s assassination.

One of this week’s most eye-catching market-related headlines came from Bloomberg, whose number crunchers noted that 30-year US yields have now spent 29 days this year — or 20% of all trading sessions — above 5%. That’s the longest such stretch since 2007.

As the figure shows, the majority of those sessions came since the ceasefire broke down on July 7.

Notably, TLT (the retail product mentioned above) is right on the late-October 2023 lows. Recall that Janet Yellen, with an assist from Jerome Powell, rescued US bonds that year. Just days after 10-year yields breached 5%, Yellen’s Treasury projected auction-size increases for longer-term securities that were smaller than what Wall Street expected. It was a subtle maneuver with far-reaching consequences. From the October 2023 highs to the lows that December, long-bond yields fell 116bps and TLT rallied more than 20%.

We don’t need that dramatic of a reversal for a rekindled stock rally (fun as it’d be), but for US equities to resume melting up — or to avoid melting down following any mega-cap earnings disappointments next week — yields do need to come off the burner.

Note that this isn’t just a US issue. Indeed, it’s safe to say selloffs in gilts, bunds and JGBs are feeding into the Treasury rout and vice versa.

As the figure above shows, the yield on an index of DM sovereign bonds excluding USTs is up 75bps since the start of the war and now averages 3.5%, the highest in nearly two decades.

This is problematic — to put it politely — in a world financed by deficit spending. In theory, deficits and debt levels “don’t matter” for highly-rated, hard currency-issuing monetary sovereigns. There’s more than a kernel of truth in that contention. So don’t scoff. But, as we’ve seen over the last several years, it’s not that simple in practice. At the very least, the optics are bad, particularly if you resort to printing money to pay a ballooning interest bill.

One near-term palliative for Treasurys would be a surprise rate hike from Kevin Warsh, which is to say a hike at the July meeting. There’s certainly a data-based case for a move at the July FOMC. I think there’s a political case for it too: If you think the market might force the issue by September anyway, better to do it now than risk having to execute a back-against-the-wall 50bps hike just ahead of the mid-terms.

This “only ends once the Fed hikes to calm the long-end,” BofA’s Michael Hartnett said, in the latest installment of his popular weekly “Flow Show” series. Personally, I don’t think Warsh has the gumption or the political latitude to brave a so-called “adjustment hike” next week. But as discussed at some length here, the US short-end’s turning the screws on him.

Anyway, the irony is that although higher yields are absolutely an albatross for richly-valued stocks, Treasurys are making the case against themselves by perennially underperforming.

For their part, stock investors aren’t too “worried thus far [and] don’t yet see the level of interest rates as a threat to the ‘Anything But Bonds’ bull market in risk assets,” Hartnett went on, adding that stocks “would be negatively surprised if an equity-friendly US administration tolerates a hike to ‘tap the brakes’ and [curb] anti-billionaire rhetoric in the run-up” to November’s elections.