Bond-Market Vertigo Is New Normal for Treasury Bonds, RBS Says

A bear market in Treasuries is under way, even after a late-week rebound, according to Royal Bank of Scotland Group Plc.

“What we’ve seen in recent weeks is not a blip, it’s the beginning of higher rates,” said William O’Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut. “Everything unraveled all at once. What we’ve had is the first of a series of bouts of bond-market vertigo.”

Declines in Treasuries the past three weeks have changed the fortunes of large fund managers, and had market prognosticators working to figure out the next move. RBS’s strategists said there’s more pain to come.

The 30-year bond yield will rise to 3.5 percent this year from its Friday level of 2.9 percent, O’Donnell said. As economic data in Europe look stronger and the Federal Reserve discusses when to raise interest rates, “the market is beginning to reassess the level of rates,” he said.

O’Donnell joined Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. and Bill Gross, the manager of the $1.5 billion Janus Global Unconstrained Bond Fund, in a growing chorus saying that government bonds are too expensive. Fed Chair Janet Yellen said that long-term Treasuries could jump when the central bank raises interest rates.