Latest news with #TreasuryYield
Bloomberg
10-06-2025
- Business
- Bloomberg
How the ‘Long Bond' Showcases America's Budget Deterioration
I'm Chris Anstey, an economics editor in Boston. Today, we're looking at increasing worries about the US budget outlook, as seen through the 30-year bond. Send us feedback and tips to ecodaily@ And if you aren't yet signed up to receive this newsletter, you can do so here. Keen readers of this newsletter may recall a January edition describing the 10-year US Treasury note yield as 'the world's benchmark interest rate.'
Zawya
04-06-2025
- Business
- Zawya
Asia could outstrip Europe as key beneficiary of U.S. capital flight: Raychaudhuri
(The views expressed here are those of the author, the founder and CEO of Emmer Capital Partners Ltd.) As global investors consider reducing their exposure to U.S. financial assets, the key question is where money flowing out of the U.S. will go. While Europe may be the obvious destination, relative value metrics may favour emerging Asia. Even though U.S. equities have recovered from the steep losses suffered in the week following U.S. President Donald Trump's announcement of his 'Liberation Day' tariffs, the same cannot be said of the U.S. bond market. Since hitting a recent low on April 4, the 10-year Treasury yield has spiked by around 50 basis points, with bond investors demanding more compensation for the risk of holding longer-dated U.S. debt. Worryingly, the benchmark Treasury yield has surged higher than nominal U.S. GDP growth – a key risk measure. Additionally, the usual positive correlation between Treasury yields and the U.S. dollar has broken off, as rising yields are no longer attracting money to the 'safest' asset in the world. Broad-based depreciation of the greenback suggests that – despite the equity rebound – many U.S. assets are being sold and the funds are flowing into markets whose currencies are appreciating. EUROPEAN ALTERNATIVE The euro's almost 10% rise against the dollar this year suggests that a significant portion of the capital flowing out of the U.S. is going to Europe, likely driven both by concerns about U.S. policy as well as expectations of higher regional growth. Further monetary easing by the European Central Bank should promote economic activity, as should the expected surge in fiscal spending following Germany's recent constitutional reform, which approved partial removal of the 'debt brake' for infrastructure and defence spending. The fiscal splurge is already offering a boost to European equities – the surprise winner thus far in 2025 – especially defence, industrial and technology stocks. DEBT WOES But there are reasons to question the new 'European exceptionalism' narrative. One likely cause of investors' growing apprehension with U.S. assets is the Trump administration's apparent inability to narrow the country's gaping fiscal deficit or reduce its debt-to-GDP ratio, which has risen to more than 120%. But elevated debt metrics are also an issue across the pond, as they are found in Italy (135% of GDP), France (113%) and the UK (96%). Importantly, both Italy and France have seen their 10-year bond yields rise above their nominal GDP growth rates. While the latter metric is also true of Germany, the country's debt load is modest at only 62% of GDP, so the statistic mostly reflects a stagnating economy that's about to get a spending boost. Fiscal expansion in Europe will likely continue to benefit the region's equities, but whether it is good news for fixed income investment there is still an open question. ASIAN OPTION Meanwhile, in emerging Asia – another potential destination for U.S. capital outflows – the debt picture is better and the growth outlook is stronger. Government debt in many Asian countries is low, ranging from 37% of GDP in Indonesia to around 85% in China and India. Benchmark bond yields across the region have been declining since October 2023, speaking to fixed income investors' limited concerns about Asian countries' fiscal situations. In fact, yields in China, Thailand and Korea are all below those in the U.S., though those in Indonesia and India remain higher. Modest debt burdens mean there is also plenty of room for more fiscal stimulus in many countries, which could improve consumption, while the benign inflation environment should enable central banks in the region to continue cutting rates to stimulate growth. Emerging Asia also offers far more high-growth, technology companies than Europe. The release of the affordable Chinese artificial intelligence model, DeepSeek, Beijing's focus on semiconductors and advanced manufacturing and the country's electric vehicle dominance could all attract tech-focused investors looking for an alternative to the U.S.. RELATIVE VALUE Even though European equities have outperformed their U.S. counterparts significantly in 2025, the twelve-month forward price-to-earnings multiple of the major European index, the STOXX50, is considerably lower than that of the S&P 500, at 15.4x and 21.0x, respectively, as of May 23. But the major emerging Asia equity index, the MSCI Asia ex Japan, is even cheaper at 13.4x. Moreover, earnings growth forecasts are higher in Asia than in either the U.S. or Europe through 2026. Finally, reallocation of assets from the U.S. could potentially have a bigger positive impact on Asia than on Europe because of their relative sizes. Let's say 5% of the U.S. free floating market cap of around $58 trillion, or roughly $3 trillion, moves out. That would represent 36% of Asia's market cap, but only 22% of Europe's. NO SLAM DUNK Caution remains warranted, though. Asian nations' ongoing trade negotiations with the U.S. will likely still encounter numerous twists and turns, and increasing protectionism could hinder the region's more export-oriented economies. Moreover, Chinese economic growth remains tepid despite the monetary and fiscal stimulus delivered over the past eight months. Finally, the capital flowing into emerging Asia is a double-edged sword because of the impact on Asian currencies versus the U.S. dollar. If Asian currencies strengthen much more, the region's export engine could stutter. Investors, thus, have to keep a close eye on macroeconomics, geopolitics and policy statements, not just valuation metrics. But given emerging Asia's benign debt environment and positive growth outlook, both the region's equity and fixed income markets have the potential to benefit from the death of American exceptionalism. (The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former Head of Asia-Pacific Equity Research at BNP Paribas Securities). (Writing by Manishi Raychaudhuri; Editing by Anna Szymanski.)
Forbes
31-05-2025
- Business
- Forbes
Bond Investors Sound The Alarm
CHICAGO, IL - MARCH 15: Traders watch prices in the Ten-Year Treasury Note options pit at the CME ... More Group following the announcement by the Federal Open Market Committee (FOMC) that they would maintain the key policy rate near zero on March 15, 2011 in Chicago, Illinois. U.S. stock and commodity prices tumbled today following a sharp drop in Japans stock market, as investors worldwide worry about the economic impact of that country's recent earthquake, tsunami and unfolding nuclear crisis. (Photo by) The financial markets in 2025 have been a whirlwind of volatility, with the stock market battered by economic policy shocks and the bond market grappling with its own turbulence. The 10-year Treasury yield, a critical barometer of economic health, has oscillated between approximately 4.0% and 4.47% this year, injecting unprecedented volatility into a market typically known for its stability. For bond investors, the chaos stems from a volatile mix of aggressive policy moves, resurgent inflation fears, and a looming fiscal crisis—culminating in the House passage of the controversial One Big Beautiful Bill Act. As the Senate debates this transformative legislation, bond investors are bracing for higher yields and the economic fallout that could follow. Treasury Secretary's Ambitious But Elusive Goal From the moment Scott Bessent, sworn in as Treasury Secretary on January 28, 2025, took office, he declared lowering interest rates—particularly the 10-year Treasury yield—his top priority. With roughly half of the U.S.'s $1.9 trillion annual deficit tied to interest payments of $952 billion, according to the Congressional Budget Office, reducing yields is critical to slowing the growth of the national debt. Early in 2025, bond markets gave Bessent the benefit of the doubt and yields briefly dipped as investors anticipated progress. However, optimism has since given way to skepticism, as a series of policy missteps and economic headwinds have made Bessent's goal seem increasingly unattainable. Bond investors, known for their forward-looking analysis, are now pricing in a future of higher yields, driven by inflationary pressures and ballooning deficits. The disconnect between Bessent's stated objectives and the administration's policy actions has left the bond market on edge, with significant implications for the broader economy. Tariffs Spark Inflation Fears The bond market's unease began in earnest on April 2, 2025—dubbed 'Liberation Day' by President Trump—when the administration unveiled sweeping tariffs on nearly all imported goods. The announcement blindsided markets, triggering a sharp repricing of risk. The stock market embarked on a weeks-long slide, while the 10-year Treasury yield surged from around 4.0% to nearly 4.5% in just three days—an extraordinary move for the typically sedate Treasury market. For bond investors, the tariffs signaled a clear and present danger: resurgent inflation. Higher costs for imported goods could ripple through the economy, driving up consumer prices and forcing the Federal Reserve to maintain elevated interest rates. This directly undermines Bessent's goal of lowering yields, as bond investors demand higher returns to offset the risk of rising inflation. The tariffs have also strained global trade relationships, further clouding the economic outlook and adding to market uncertainty. A Credit Downgrade Deepens Concerns On May 16, 2025, Moody's delivered another blow, downgrading the U.S. credit rating from AAA to Aa1, the last major credit rating agency to take this step. Citing ballooning deficits, a growing national debt, and rising borrowing costs, the downgrade confirmed what many bond investors had already feared. While the move was not entirely unexpected, markets are still processing its implications, particularly as they await clarity on Republican budget legislation. The downgrade underscores the precarious state of U.S. fiscal health. With deficits projected to widen, bond investors are increasingly wary of holding U.S. debt without higher yields to compensate for the added risk. This dynamic further complicates Bessent's mission to lower interest rates, as rising borrowing costs threaten to spiral out of control. The One Big Beautiful Bill Act: A Fiscal Reckoning The passage of the One Big Beautiful Bill Act by the House of Representatives on May 22, 2025, by a 215-214 vote, has only intensified these concerns. Far from the fiscal restraint one might expect from a Republican-led initiative, the bill is projected to add $5.1 trillion to the national debt over the next decade if extended, according to the Committee for a Responsible Federal Budget. Now under consideration in the Senate, where significant changes are expected, the legislation signals a trajectory of growing deficits—a red flag for bond investors. The bill's fiscal hubris directly undermines Bessent's goal of reducing borrowing costs. Higher deficits mean increased Treasury issuance, which could flood the bond market and drive yields higher as investors demand greater compensation. With inflation concerns already heightened by tariffs, the Federal Reserve has little room to cut rates, leaving bond yields—and borrowing costs—poised to rise further. This creates a vicious cycle: higher yields increase the cost of servicing the national debt, further widening deficits and necessitating even more borrowing. The Broader Economic Fallout The implications of rising Treasury yields extend far beyond the bond market. Higher yields increase borrowing costs for businesses and consumers, slowing economic growth and putting pressure on everything from corporate expansions to mortgage rates. While the stock market's volatility grabs headlines, the bond market's dynamics have a more direct and profound impact on economic activity. As yields rise, borrowers—both corporate and individual—find themselves in a precarious position, with ripple effects that could dampen investment and consumer spending. For investors, the message is clear: the bond market is sounding a warning. The combination of tariff-driven inflation, a credit downgrade, and the One Big Beautiful Bill Act's fiscal blind spots creates a perfect storm for higher yields. This could weigh heavily on stock portfolios, as slower growth and tighter financial conditions erode corporate profits and investor confidence. As the Senate debates the One Big Beautiful Bill Act, bond investors are watching closely. Any indication that the final legislation will further inflate deficits could push yields higher still, threatening economic stability and undermining Bessent's goal of lower interest rates. For now, the bond market is sending a clear signal: bold policy promises are no match for fiscal realities. Investors would be wise to monitor Treasury yields closely and consider the risks posed to their portfolios in the year ahead. In a market defined by uncertainty, the bond market's message is unmistakable: brace for impact.
Wall Street Journal
23-05-2025
- Business
- Wall Street Journal
Bond Market to Washington: We'll Make You Pay
Let's put the bond turmoil in perspective. At 4.55%, the 10-year Treasury yield is back to where it started the year, and still below the 5% hit in the fall of 2023. So this week's rise in yields does not signal panic, prelude to a crisis or a lender's strike.
Bloomberg
21-05-2025
- Business
- Bloomberg
Risks Mount for US Financial Assets as Treasuries Teeter
The 30-year Treasury yield was firmly above 5% the last time I looked, at the highest since 2023 after a weak auction of 20-year debt. I am now officially worried about US bonds. Just last week, I was saying the downside risk from the tariff and economic picture hurts equities more than bonds. But the downgrade of the US credit rating by Moody's Ratings and the high-deficit budget being crafted in Congress have changed my view.
