Is the myth of "risk-free assets" being shaken? The soaring US bond yields have raised market concerns. HSBC warns that we have entered a "danger zone."

For a long time, U.S. Treasury bonds have been considered the core "risk-free asset" in the global financial markets and an important benchmark for investors to gauge the risks of other assets. However, as the yields on long-term U.S. Treasury bonds continue to soar, more and more Wall Street institutions are beginning to re-examine this traditional belief. This week, the yield on the 30-year U.S. Treasury bonds rose to the highest level since 2007, while the yield on the 10-year U.S. Treasury bonds also reached over a year high. On Friday, the yield on the 10-year Treasury bonds was reported at 4.57%, while the yield on the 30-year bonds rose to 5.08%. The core reasons driving the sell-off in the bond market in this round include the rise in oil prices triggered by the Middle East conflict, the resurgence of inflation pressure, and concerns in the market about the Federal Reserve raising interest rates again. With Jerome Powell officially taking over as the Chairman of the Federal Reserve, there has been a noticeable shift in market expectations for monetary policy. Despite President Trump's previous demands for rate cuts by the Federal Reserve, traders are now beginning to bet that the Fed may not cut interest rates within the remaining time until 2026, and the probability of raising interest rates is increasing. In this context, the volatility in the U.S. bond market has significantly intensified. HSBC HOLDINGS warned in a report this week that the U.S. Treasury bond market has entered a "danger zone." JoAnne Bianco, Senior Investment Strategist at BondBloxx Investment Management, also stated that calling U.S. Treasury bonds "risk-free rates" is not accurate. She said, "It is not truly risk-free, there is a lot of risk involved." Bianco believes that the market is increasingly inclined to believe that the next step for the Federal Reserve is more likely to be an interest rate hike rather than a cut, and this process may even begin as early as later this year. While rising bond yields mean investors can earn higher interest income, they also suppress bond prices, especially for long-term bonds. Therefore, Bianco suggests that fixed income investors focus more on mid-term U.S. bonds with maturities of 5 to 7 years rather than long-term bonds. She pointed out that mid-term bonds can allow investors to lock in the current higher yields while avoiding the risks of sharp price fluctuations in long-term bonds. At the same time, she also recommended that investors pay attention to the investment-grade corporate bond market and the high-yield bond market. Bianco believes that although corporate bond credit spreads are currently low, this is for good reason, as the overall fundamentals of U.S. companies remain strong. She stated that U.S. corporate profit performance remains robust, and many investment-grade and high-yield bond issuing companies have provided positive performance guidance. In the investment-grade bond market, she is particularly bullish on BBB-rated corporate bonds. Bianco pointed out that BBB-rated corporate bonds have consistently outperformed the overall U.S. corporate bond index and the comprehensive bond index with higher coupon income. While BBB bonds have a higher default risk than AAA bonds, she emphasized that the current market environment does not show clear signs of deterioration. She stated that the default rate for investment-grade BBB bonds has been below 0.3% for the past 30 years. Meanwhile, the high-yield bond market currently has yields as high as 12%. Bianco noted that the overall credit quality of high-yield bond issuing companies is strong, and corporate profits and fundamentals remain sound. She also stated that companies are currently more inclined to refinance debt rather than engage in highly leveraged mergers and acquisitions or aggressive financing operations. Bianco expects that for the remaining time this year, the default rate for U.S. companies will continue to be lower than the long-term average level.