US Treasuries are looking increasingly attractive to Hong Kong investors after a prolonged sell-off pushed yields to multi-decade highs, prompting some strategists and wealth managers to recommend buying while others warned that further losses may lie ahead.

The benchmark 10-year Treasury yield surged above 5.36 per cent on Wednesday, its highest in 24 years, before retreating to around 5.23 per cent on Thursday following strong demand at a US$22 billion auction of 30-year government bonds.

Higher yields, which move inversely to bond prices, offer investors an opportunity to lock in attractive income and potentially benefit from capital gains if yields retreat, but the prospect of further tightening Federal Reserve policies, persistent inflation and heavy US government borrowing could keep yields elevated, according to strategists.

Standard Chartered has turned more bullish, recommending an opportunistic long position in 10-year Treasuries after yields climbed above 5 per cent. The bank expects the 10-year yield to retreat towards 4.75 to 5 per cent over the next six to 12 months, citing expectations of moderating inflation and a shallower Federal Reserve tightening cycle than markets anticipate.

“We view the risk/reward for the US 10-year government bond after the recent yield spike as compelling and we are initiating a long opportunistic idea at the current yield,” authors led by Jonathan Liang, chief investment officer for fixed income and FX at Standard Chartered, said in a September 28 report.

Cusson Leung, CIO of international wealth management at KGI, also sees an opportunity to lock in high yields, although he cautioned that the market might not have reached its bottom.

“We might not get the absolute bottom yet. Practically it is almost impossible to get an absolute bottom,” Leung said, recommending that investors gradually build positions during the fourth quarter.

Unlike investors favouring shorter maturities, Leung prefers 10- to 30-year Treasuries, expecting inflationary pressures to ease by the end of the first quarter of 2027 and potentially revive expectations of Fed rate cuts. Others remain wary of taking on excessive duration risk.

Jason Chan, senior investment strategist at Bank of East Asia, favours three- to five-year Treasuries, which he said offer sufficient income to cushion against further yield increases while limiting exposure to price volatility.

He advised avoiding longer-dated bonds, citing persistent inflation, fiscal deficits and the potential crowding-out effect of artificial intelligence-related capital expenditure.

Louis Wong, executive director at Phillip Capital Management, also favours the middle of the yield curve, particularly five- to 10-year Treasuries.

“A 10-year yield near 5.25 per cent is high against the past decade but the next move in yields can still be up,” Wong said.

He added that the elevated yields are drawing the attention of Hong Kong and mainland investors, as the assets offering returns of around 5 per cent compete with local bank deposits and dividend-paying stocks.

While Hong Kong’s currency peg to the US dollar limits exchange-rate risks, mainland investors funding their purchases in yuan face greater currency uncertainty, he said. Further Fed tightening could also leave bondholders facing capital losses before they have earned enough income to offset them, he added.

Wong suggested investors focus on two- to 10-year Treasuries or short-term Treasury funds, while managing currency exposure to avoid exchange-rate movements eroding their returns.