Latest news with #fiscaldeficits
Bloomberg
14-07-2025
- Business
- Bloomberg
Japan Leads Global Long-Bond Drop as Spending Takes Center-Stage
Yields for long-term debt from Japan and Germany to the UK and France rose on Monday as growing concern over widening fiscal deficits dented demand. The yield on Japan's 30-year notes jumped the most in two months and those on similar-maturity German bunds flirted with their loftiest levels in 14 years. For these countries fiscal concerns are usurping central-bank interest-rate policies as the main factor to watch. While the selloff is less pronounced in the US, 30-year yields there still touched the highest in a month.
Yahoo
08-07-2025
- Business
- Yahoo
The Bond Market Faced a Volatile First Half—What's Next?
Bond markets have been volatile so far this year on uncertainty about tariffs and fiscal deficits. However, if the economy weakens, bonds could be more attractive to investors. Bond yields could push higher if the tension between the Federal Reserve and President Donald Trump is all the volatility in bond markets this year, interest rates haven't changed much—but sustained decreases in long-term rates may be on the way. Federal Reserve rate cuts would lower interest costs for credit cards, student loans, and other products based on short-term rates. However, the Fed has less influence over longer-term rates, such as the 10-year U.S. Treasury. Those are based more on how markets view the economy and inflation in the decade ahead. Forecasting the next decade is always tricky, but it got even harder in April. Bond markets were volatile as traders fretted Trump's tariffs could drive inflation, tank the economy and reshape supply chains permanently. Fears dissipated after Trump paused many tariffs, but May saw more volatility as higher U.S. fiscal deficits worried investors. June was tamer, as inflation data stayed mostly subdued and economic data underperformed. If that sticks, long-term rates may fall as investors price in a weaker outlook. Longer-dated bonds look 'attractive,' said Brij Khurana, a portfolio manager at Wellington Management. Outperformance in bonds would mark a shift after the toll that post-COVID inflation spikes took on the bond market. Bonds have historically been a safe haven from volatile stocks—bonds did well whenever stocks suffered—but the last few years threw off that correlation. The relationship may return if the economy weakens. 'If we are moving into a much slower growth environment than we thought, I think bonds have a better hedging capability to stocks than they have in quite some time,' Khurana said. But there's also a risk that rates will stay elevated. The Fed could keep short-term rates high, dampening hopes that long-term rates will follow them downward. While tariff-driven inflation hasn't shown up yet, it's a risk that has thus far kept the Fed on hold. 'I don't think that they need to lower rates at the moment,' said Cal Spranger, fixed income manager and wealth manager at Badgley Phelps, adding that rates aren't 'what is giving the economy heartburn.' The Fed keeping rates flat could increase its friction with Trump, who's pressed Fed Chair Jerome Powell to slash rates and give the economy an extra boost. Powell's term is up in May 2026, but Trump has weighed picking a new Fed chair far sooner than that. Naming a successor before the end of Powell's term would create a 'shadow Fed chair,' who could influence the policy outlook based on public comments. The Wall Street Journal reported that Trump was considering that prospect late last month. The scenario has long unsettled markets—that Trump's desired pick will call for rate cuts even if the Fed thinks otherwise. That could damage the central bank's credibility with investors—who have long valued the Fed's ability to make decisions independently. 'The announcement of a 'shadow' Chair risks a loss to Fed independence that pushes longer-dated yields higher,' wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. Read the original article on Investopedia Sign in to access your portfolio
Bloomberg
16-06-2025
- Business
- Bloomberg
Japan's Bond Chaos Heralds More Volatility Across Global Markets
Japan's once-slumbering bond market has roared back to life with a burst of volatility that is echoing around the world. Major debt markets have moved in tandem with Japanese government bonds during the recent rout, with a spike in super-long yields in the Asian nation amplifying ructions fueled by global fears of widening fiscal deficits.
Reuters
09-06-2025
- Business
- Reuters
Looming US Treasury debt auctions an important sentiment test
NEW YORK, June 9 (Reuters) - U.S. Treasury auctions of notes and bonds this week are even more in focus than usual as tests of market sentiment on U.S. assets, and while investors look like keen buyers of short and medium-term debt, appetite at the long end is more dicey. These once-routine auctions have become a focus for investors as a gauge of demand, both foreign and domestic, with the July 9 deadline for the 90-day pause on reciprocal tariffs fast approaching. Aside from bills, the U.S. Treasury will sell a total of $119 billion in three- and 10-year notes, as well as 30-year bonds. The latter will be closely watched for signs that bond investors are putting their foot down and rejecting countries with huge fiscal deficits and mountains of debt. "We are now in an environment where investors are looking that could be dropping at a time when supply seems to be on the precipice of rising further," said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte. Bond vigilantes, seemingly back with a vengeance, have questioned fiscal profligacy around the world amid concerns U.S. President Donald Trump's trade war and tax cuts will fuel inflation, while the tariffs will additionally curb global growth and force governments to spend more. At the same time, last month's U.S. credit rating downgrade by Moody's is a stark reminder that the world's largest economy is courting disaster with a $36 trillion debt pile. On Tuesday, the Treasury will sell $58 billion in three-year notes, followed by $39 billion in 10-year debt on Wednesday, and $22 billion in 30-year bonds on Thursday. Overall, analysts expect these auctions to go smoothly. "The trend in these auctions has been reassuring so far," said Guneet Dhingra, head of U.S. rates strategy at BNP Paribas, in New York. "Largely the auction numbers suggest that there has been no meaningful dent in both foreign and domestic demand." Last month's three-year note auction showed solid results. Indirect bids, which include foreign central banks, took in 62% of the total issuance, lower than April's numbers, but roughly in line with the average for the last 12 auctions. Offshore investors, particularly foreign official buyers, typically gravitate toward shorter-term Treasuries, specifically those with maturities of less than five years, according to the latest U.S. Treasury survey. Jay Barry, head of global rates strategy at J.P. Morgan, wrote in a research note that foreign official institutions' focus on the front end suggested that any rotation away from Treasuries "could be realized through letting holdings run off and not reinvesting, rather than selling securities outright." In the case of the 10-year note auction on Wednesday, the outcome is a little trickier to forecast, analysts said, given that it comes on the same day as the release of the U.S. consumer price index data. However, based on auction statistics, there will be no shortage of buyers for the 10-year, analysts said. Last month's 10-year auction showed a sturdy outcome. Indirect bids took in about 76% of the total issue, higher than the 12-auction average of 72%. "The primary driver of a buyer's strike was thought to be the trade war and stepping back from the Treasury market," Ben Jeffery, vice president, interest rates trading, at BMO Capital Markets, said in a podcast on Friday. " opposite argument might be true, and that is: why would one preemptively pull back from the Treasury market, rather than demonstrate ongoing sponsorship for Treasuries as a negotiating tool? We have yet to see any clear evidence of foreign sponsorship pulling back from Treasuries." The U.S. 30-year bond auction, meanwhile, could go either way and some analysts said they would not be surprised if it comes out weaker than expected given the spate of poor long-dated sales globally. That has led to the surge in yields on the back end, particularly U.S. 30-year bonds, which hit 5.16% last month, the highest since October 2023. "The 30-year is the poster child for all the market's fiscal concerns," said BNP's Dhingra. "But if you look at the statistics available until April, you can see that the 30-year bond auction numbers have seen pretty stable demand from dealers." But last month's 30-year auction was not well-received, picking up a yield that was higher than the expected rate at the bid deadline, suggesting investors demanded a premium to purchase the bond. Indirect bids were marginally lower than the 12-auction average. The 30-year bond also did not fare well at the April auction. "Demand from foreign investors for 30-year bonds has probably plateaued," said CreditSights' Griffiths.
Yahoo
25-05-2025
- Business
- Yahoo
Vanguard chief economist explains rising deficits & the effects
Rising bond yields (^TYX, ^TNX, ^FVX) are putting fiscal deficits in the spotlight. Vanguard global chief economist and global head of investment strategy Joe Davis joins Market Domination to break down how structural debt could pressure interest rates and the broader economy. To watch more expert insights and analysis on the latest market action, check out more Wealth here. Do me a favor, Joe. Can you spell out for people who are watching, viewers who are watching who are not as steeped in the arcana of the bond market, why this is so important? Because for years, we have heard, um, concerns raised about these deficits and the potential effects and we haven't really seen those come to fruition. Why might that happen? And what could they be? Sure. Sure. Should I give you three points? You know, one is, for anyone who hears the phrase deficit, that's just a gap between the taxes that a government brings in and then what is its spending on social programs, national defense, and interest costs. A deficit obviously, you're spending more than you bring in. Um, you know, when you're during when during recessions or periods of war, we've seen very high deficit levels and they don't necessarily have any impact on interest rates. You know, they're they're generally viewed as temporary unfortunate events, if it's a war or a recession, but they don't have this permanent effect of the the debt levels growing at an increasing rate. However, if it's what's called what's what economists call structural, which means every year, whether the economy is strong or not, we have, uh, uh, deficits growing. And part of the reason for that is, you know, we have strong commitments from Social Security, Medicare, Medicaid, and we have tax rates that don't fully cover those costs. And so, um, in our framework, uh, that is what can have an impact on interest rates, higher borrowing costs for the for the Treasury to issue debt, and then all the interest rates tied to that, mortgage rates, auto loans and so and so forth again. We're not at alarming levels yet. I don't think we'll be there tomorrow, but we started putting our finger on this dynamic two years ago. And so if we do not see a stabilization in our deficit levels, uh, we could see further upward pressure, uh, on the bond market. And that's precisely the scenario we talk about, uh, in the book released today.
