(Bloomberg) — Bond investors are demanding more and more compensation to hold long-dated US debt as global markets grow anxious about the widening fiscal deficit in the world\u2019s biggest economy.<\/p>\n
Most Read from Bloomberg<\/p>\n
The US 10-year term premium \u2014 or the extra return investors demand to own longer-term debt instead of a series of shorter ones \u2014 has climbed to near 1%, a level last seen in 2014. It\u2019s a measure of how jittery investors are about plans to raise the scale of future borrowing.<\/p>\n
While bonds pared some of their weekly losses on Friday, investors were still clearly focused on the US\u2019s funding challenges after Moody\u2019s Ratings stripped the nation of its last top-tier credit score. This week, the US House of Representatives passed a multi-trillion dollar bill extending Trump\u2019s tax cuts, and an auction of 20-year Treasuries attracted weak demand.<\/p>\n
US Yields Slide as Trump Tariff Threat Reignites Growth Concerns<\/p>\n
\u201cThe danger for now is that this fiscal phenomenon feeds on itself,\u201d said Ella Hoxha, head of fixed income at Newton Investment Management, in an interview with Bloomberg TV. \u201cThat should be somewhat of a concern, certainly for risky assets and certainly for policymakers as well, as they have to finance at much higher interest rates.\u201d<\/p>\n
US long-term borrowing costs surged this week, with the 30-year yield climbing to 5.15% \u2014 just shy of its highest level in nearly 20 years. The real rate for the same tenor \u2014 which is adjusted for inflation \u2014 closed at the most elevated level since 2008 on Wednesday.<\/p>\n
The moves eased on Friday as the selloff attracted buyers and President Donald Trump threatened a sweeping tariffs on the European Union and Apple Inc. The 30-year yield traded just above 5% as of 2:45 p.m. in London, up for a fourth week.<\/p>\n
Bank of America Corp.\u2019s Michael Hartnett said investors should take the opportunity to add long-dated Treasuries as the US government is likely to heed warnings from bond vigilantes to bring its debt under control.<\/p>\n
Others were more circumspect, pointing to periods where term premium in 10-year notes was far higher than it is now. In the first decade of this century, it averaged a level of more than 150 basis points, according to the New York Fed\u2019s gauge, before plunging in the years of ultra-easy monetary policy.<\/p>\n
Investors are realizing that long-dated debt \u201cis no longer a safe asset,\u201d said Guillermo Felices, global investment strategist at PGIM Fixed Income. He adds it\u2019s \u201cvery hard\u201d to assess the fair value of these notes because the term premium had been \u201cdistorted\u201d for years.<\/p>\n
Long-term bond yields have also risen elsewhere this week, with those in Japan climbing to the highest since records began in the late 1990s. Similar debt in the UK, Germany and Australia has also faced selling pressure.<\/p>\n
It\u2019s a reminder from markets that governments can\u2019t keep borrowing at the pace they did when interest rates were close to zero, particularly since trade tensions and sticky inflation have diminished the probability that policymakers will dramatically ease monetary policy.<\/p>\n
\u201cThis speaks to the ongoing degree of nervousness around the fiscal backdrop in the US, but also on a global level, where deficit concerns continue to play on the minds of market participants everywhere,\u201d said Michael Brown, a strategist at Pepperstone. \u201cJustifiably so, frankly, given that there seems little-to-no desire among governments to get a grip of the situation.\u201d<\/p>\n
Investors around the globe have been moving away from US assets since Trump unveiled high tariffs on trading partners. While some of those have since been scaled back, fund managers say there\u2019s too much policy uncertainty.<\/p>\n
\u201cWe have moved from the tariff story to the fiscal story,\u201d Citigroup Inc. strategists including Dirk Willer wrote in a note, recommending clients to be underweight duration. \u201cWhile the recent steepening of curves has been a global phenomenon, driven by a shortage of savings, the \u2018Big Beautiful Bill\u2019 risks adding fuel to the fire.\u201d<\/p>\n
Money managers from DoubleLine to PGIM have flagged the risk that long-term yields will keep rising, and even central banks have expressed their worries. On Friday, the governor of the Philippine central bank said the authority may consider reducing its holdings of US debt following the Moody\u2019s downgrade.<\/p>\n
Japan\u2019s Case<\/p>\n
Japanese bond markets were particularly hit by the latest selloff. That\u2019s the result of the Bank of Japan scaling back its bond purchases as inflation accelerates, at the same time that traditional buyers like the nation\u2019s life insurers fail to fill the gap left behind. Prime Minister Shigeru Ishiba said this week the nation\u2019s financial conditions are worse than Greece\u2019s.<\/p>\n
What Bloomberg\u2019s Strategists Say…<\/p>\n
\u201cToday\u2019s hot inflation data out of Japan reinforces the view that stagflation risks are building and that is especially painful for holders of long-term debt. …It could be some time before investors are convinced there is clear relative value in the Japanese curve.\u201d<\/p>\n
\u2014 Mark Cranfield, Markets Live Strategist, Singapore<\/p>\n
Barclays Plc\u2019s global chair of research Ajay Rajadhyaksha said Japan may consider asking government-owned entities to support the nation\u2019s bond market if the selloff in longer-dated debt doesn\u2019t abate. While this isn\u2019t his base case and may not progress beyond an idea, in theory such a scenario could trigger sales of US Treasuries in order to pay for domestic bonds.<\/p>\n
The Japanese 30-year bond staged a comeback on Friday as the selloff lured buyers, leading the yield to fall 13 basis points to 3.05%. Still, strategists are widely discussing the broad implications of Japan\u2019s bond rout for Treasuries, with Deutsche Bank AG warning the rising Japanese yields will make the notes more attractive to local buyers and so pose a threat to US debt.<\/p>\n
Albert Edwards, a global strategist at Societe Generale SA, said that while US bond and stock markets have previously benefited from money flowing from Japan, this may now be reversing.<\/p>\n
\u201cI would rank trying to understand and follow the surging long end of the JGB market as the No. 1 most important thing for investors at the moment,\u201d Edwards wrote in a report to clients.<\/p>\n
–With assistance from James Hirai and Naomi Tajitsu.<\/p>\n
(Updates with latest market moves in third paragraph, refreshes prices throughout.)<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — Bond investors are demanding more and more compensation to hold long-dated US debt as global markets…\n","protected":false},"author":2,"featured_media":125512,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3090],"tags":[3662,55592,55593,51,32,1700,52704,22668,2122,55595,7769,51133,16,15,55594],"class_list":{"0":"post-125511","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-bloomberg","9":"tag-bloomberg-tv","10":"tag-bond-investors","11":"tag-business","12":"tag-donald-trump","13":"tag-economy","14":"tag-fiscal-deficit","15":"tag-global-markets","16":"tag-japan","17":"tag-jittery-investors","18":"tag-michael-hartnett","19":"tag-moodys-ratings","20":"tag-uk","21":"tag-united-kingdom","22":"tag-us-house-of-representatives"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114557693685340459","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/125511","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=125511"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/125511\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/125512"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=125511"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=125511"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=125511"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}