Yield demands spike as investors shun long-dated US Treasurys
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Long-dated Treasurys are falling out of favor fast. Since April 2, the 10-year yield jumped to 4.37% as bond prices dropped, even though shorter-term yields went the other way. That divide—what Wall Street calls a steepening twist—came as markets were still reacting to President Donald Trump’s tariff moves, which triggered chaos earlier in April. This twist has already started raising borrowing costs across the economy. The Federal Reserve may plan to cut rates to boost growth, but long-term yields don’t seem to care anymore. They’ve disconnected from the usual relationship with short-term rate expectations. That’s a major red flag for policymakers trying to keep credit flowing. Longer-term yields rise as term premium climbs One of the key reasons for the spike in long-dated Treasurys is fear—mostly about inflation and policy direction. Trump’s unpredictable trade policies have clouded investor expectations. While many think inflation will cool down in the coming years, they’re not betting on it with full confidence. To protect themselves, they want a higher return for holding long-term debt. That extra return is called a term premium, and it’s been on the rise. “The bond market is reflecting uncertainty about where this economy is heading and still lingering uncertainty about what the policy landscape will ultimately be,” said Tim Ng, a fixed-income portfolio manager at Capital Group. Another concern is the federal budget deficit. Investors are worried the government will keep pumping out more bonds to cover its shortfall, which will keep dragging down prices. Republicans in both chambers have been trying to push tax-cut bills, but there’s no clear plan for spending cuts to balance it out. That makes investors even more cautious. Even if the U.S. hits a recession and the Fed slashes rates, there’s concern that long-term yields might stay stubborn. That would screw over mortgage…
Filed under: News - @ May 11, 2025 4:21 pm