A 5% Treasury yield draws Gulf investors back to bonds

Money that had been sitting on the sidelines is finding a reason to move: US government bonds offering a yield of around 5%. Investors in the UAE and wider Gulf are among those showing stronger interest as the 10-year Treasury yield reaches a level last seen in 2007, according to Khaleej Times. The attraction is income, but the challenge is that bond prices can still fall even when their yields look appealing.

Wael Makarem, financial markets strategist lead at Exness, told the newspaper that the appetite extends well beyond the Gulf. After years when near-zero interest rates limited the income available from bonds, investors now have more scope to spread their money across bonds, shares and other assets. A Treasury is US government debt; its yield measures the return available at its market price.

Makarem said investors with cash waiting to be deployed are seeking to secure returns of 5% to 6% on A-grade bonds—debt carrying a high credit rating. Issuers judged riskier are offering several percentage points more. That gap underlines the trade-off facing buyers: a higher promised return can come with greater risk, rather than simply a better income opportunity.

The interest in bonds yielding 5% is global and includes the UAE and Gulf countries, according to Exness strategist Wael Makarem.

More buyers, but little power over yields

The renewed appetite does not mean Gulf buying will shift the Treasury market. Ahmad Assiri, research strategist at Pepperstone, said even heavy inflows would have little effect in the world's largest and most easily traded bond market. Large banks and institutions transact there daily, and he said the number of buyers remains too small to push yields lower. Many investors are making modest initial purchases and adding to their holdings gradually.

Assiri pointed to the income appeal for people in their 30s and 40s planning their future cash flows. He said yields on two-year, five-year and 10-year Treasuries were separated by only about 10 basis points, or 0.1 percentage point. The five-year real yield—the return after accounting for inflation—was about 2.3%, he added. Those figures make the choice of how long to hold debt part of the decision, alongside the headline return.

Rates and oil remain the pressure points

Makarem identified further Federal Reserve tightening as the main threat to bond prices. Higher interest rates can reduce the market value of existing bonds. Conversely, he said peace talks or an agreement that lowers oil prices could ease inflation and expectations of further rate increases, supporting bond prices. The income opportunity therefore sits alongside uncertainty about both monetary policy and geopolitical developments.

Ross Maxwell, chief strategy officer at VT Markets, said higher yields largely reflected expectations of US rate increases. He warned that further Middle East escalation could disrupt oil supplies, while higher borrowing costs could pressure corporate earnings and infrastructure spending. Technology-led stock-market gains could also face a correction, and continued rate increases could weaken global growth.

For Gulf investors, the next test is whether today's income appeal can withstand those pressures. The strategists stressed diversification and the importance of available cash, rather than treating higher yields as a risk-free opening. Fed policy, Middle East developments and their effect on oil and inflation are the key forces to watch next.