(Bloomberg) -- The Treasury market is nearing levels that risk triggering a large selloff, pushing yields on 10-year bonds back to 5%, according to Vanguard.

“We are in a danger zone right now,” Ales Koutny, head of international rates at Vanguard, said in an interview. Even a small move higher — past the critical 4.75% level — could force investors to abandon their bets on a rally, giving way to a wave of selling that could push yields toward the highs of 2007, he said.

Investors had piled into Treasuries late last year, betting on a swift easing cycle from the Federal Reserve. Still, as incoming data has pointed to persistent strength in the US economy, the market has turned against them. 

Many are being forced to sell off their holdings to limit losses, said Koutny, who helps manages Vanguard’s $1.7 trillion in active assets.

“We still think that there’s a residual long position left over,” Koutny said. “If that doesn’t manage to be orderly squared away, that disorderly move could be what takes us eventually to 5%.”

The rout was compounded over the past week after data showed inflation remains persistently high. The 10-year yield jumped to nearly 4.7% on Tuesday before pulling back to 4.57% on Thursday. Traders are betting that the Fed will start cutting rates in September, much later than expectations for June just a month ago.

The high yields are beginning to attract some opportunistic buyers, even as negative sentiment remains firmly entrenched throughout the Treasury market. The latest client survey from JPMorgan Chase & Co. showed that investors were net long on Treasuries by the most since March 25.

Demand for new issuance is also strong, with a 20-year Treasury auction on Wednesday awarded at 4.818%, below the 4.843% when-issued yield. 

(Updates with positioning and auction details in final two paragraphs.)

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