Bond yields signal buy, but the entry point is choppy. Here’s what investors should watch for.

The bond market is stealing the spotlight as we turn the corner into a new year that rang in yields not seen since 2007. In October the yield only briefly tapped 5%.

On Tuesday, the 10-year Treasury hovered around 4.79%, near the psychologically key level of 5%. The 30-year rallied even closer at 4.98%.

The spike comes on the heels of market expectations of a growing economy, and the fear of returning inflation after December’s payroll showed 256,000 jobs were added, well above the forecast of 164,000. It signals that the US economy is either accelerating or stabilizing at a stronger level, said Gennadiy Goldberg, the head of US rates strategy at TD Securities, who believes it’s likely the latter.

While the rise in yields could be initially blamed on stronger economic data, it is no surprise for some money managers and economists. Expectations of the 10-year hitting and even bypassing 5% were on their list of things to look out for in 2025.

Markets had been discounting the impact of corporate tax cuts and stricter immigration laws that could widen the deficit and aggravate inflation as early as October. Yields on longer-duration bonds rallied higher into elections as the likelihood of a Trump victory was increasingly accepted. The swift Republican win pushed the 10-year yield up from an election-day close of 4.29% to a high of 4.76% the following day.

In October, Christophe Barraud, the chief economist and strategist at Market Securities Monaco, who has a startling track record for accuracy, said that a Republican sweep would gradually move the 10-year to 5% as investors seek a higher term premium to compensate for duration risks from what could become Washington’s manufactured uncertainties. It’s a concern the bond market knew all too well could play out.

Where to jump in

Now that we’re here, the question becomes whether it’s a buying opportunity. The answer is yes — higher yields provide an attractive starting point for returns, and because bond prices rise when yields fall, lower yields would boost the profits investors can earn by selling later. However, the range is wide and perhaps choppy for those eyeballing an entry point into longer-duration bonds.

In a November interview with B-17, Jimmy Chang, the CIO of the Rockefeller Global Family Office, warned of a strong reaction from the bond market that would push the yield higher and cautioned investors against jumping in right at the tempting 5% threshold, citing concerns of unpredictability near technical resistance points. He also expressed concerns over bond vigilantes, a generic term that represents the collective psyche of investors who may sell or avoid buying bonds as a means of protest against bad fiscal, monetary, or inflationary policies. He advised buying only once there were stabilization signals, whether below or above the threshold.

In the meantime, the 10-year is already attractive at 4.74%, according to Goldberg. For rates to continue moving higher, he believes one of three things needs to happen: The market has to price in rate hikes, which is a high bar because it would create a massive economic shift. Or, the deficit would need to widen well above 2024’s $1.8 trillion mark. But a narrow Republican majority will likely prevent a large increase in unforeseen spending. Finally, tariffs would need to come in much higher than expected. While there’s no precise target of where tariffs could land, Goldberg believes if the Trump administration follows through with, say, a 60% tariff on China, 10% on Europe, and adds Canada and Mexico to the list, that could push inflation expectations up.

TD Secruties’ target rate is 4.30%, a technical point that’s roughly the halfway mark to the December sell-off, Goldberg said. But that’s also because he doesn’t expect the US economy will fall off a cliff anytime soon. So unless the market expects the Fed to cut interest rates very sharply, the yield can continue to hover in the mid-to-low fours for some time. His current target is no rate cuts in the first half of the year, followed by four cuts for a total of 100 basis points.

Finally, Goldberg suggests leaving some dry powder for a potential ceiling of 5.05% if the yield continues climbing amid near-term payroll and inflation data that remains above expectations. To play that hand, investors must closely watch for directional shifts that could signal economic acceleration or stabilization. On Tuesday, December’s producer price index (PPI), a measure of wholesale prices, rose 0.2% on a monthly basis to 3.3% from a year ago. It’s a reading that’s below economist expectations of 3.5%, which could be a sigh of relief. The next number to watch for will be the December consumer price index.

“As soon as momentum looks like it’s abating, that kind of bearish momentum or the move higher in rates is abating, I do think a lot of real-money investors will start to jump in because the levels are very attractive long-term if you expect the Fed to be cutting rates at some point later this year,” Goldberg said.