(Bloomberg) - U.S. Treasury bonds will lose for the first time this year, growing anxiety due to updated tariff uncertainty and anxiety about additional debt levels of government debt.
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The Bloomberg index, which closed between May and Thursday, fell more than 1.2% after all due dates were under pressure. The 30-year yield has grown for the third straight month, the longest winning streak since 2023, while the two-year and 10-year tenor yields have posted their first monthly increase this year.
The poor monthly performance reflects the unpredictable policies of the U.S. government have shaken investor confidence and therefore faced a headwind of Treasury bonds. May revived concerns about the U.S. budget deficit as Donald Trump struggled with Congress over a bill that could potentially cut taxes.
"I don't think the bond market is dislocated, but you do need to price the deficit," said Timothy Graf, head of macro strategy at EMEA, London State Street Market. "We still see 5% on 10 notes as the target here."
Although Friday's Treasury bonds were getting smaller, these moves were small. The two-year yield on the day fell by four basis points to 3.9% - still an increase compared to 3.6% ending in April. In a social media post on Friday, Trump said China violated a deal to reduce tit tat tariffs with the United States and then spoke with Chinese President Xi Jinping to express confidence that it could ease new trade tensions.
Economic data from the last trading day of the month also showed that U.S. imports fell in April, while consumer spending growth slowed and inflation remained tame. By December, the money market was priced at about 50 basis points that the Fed rate had dropped.
Signs that economic stumbling blocks will specifically support shorter maturities, which are more sensitive to Fed policy. However, the prospects for long-term bonds remain challenging, especially given the rising supply of global security assets.
Goldman Sachs' Waldron says bond traders are more worried about debt than tariffs
Citigroup Inc. Strategists including Dirk Willer have seen the term "premium" in the 10-year U.S. Treasury - Investors demand additional returns to have long-term debt instead of a shorter set of debts - an additional 50 basis points added next year as buyers compete. It rose to a decade earlier last month.
Fair value gap
At Man Group, portfolio manager Henry Neville is tracking the gap between actual transactions in 10-year yields and theoretical fair value.
Although the treasury’s favored position as a traditional haven is far below its fair value, the gap has been narrowing.
According to Neville's analysis, the average gap since 2020 is 150 basis points, the lowest price spread in any decade since the 1960s. Between May 2023 and July 2024, the gap for 15 consecutive months was below 100 basis points, the longest ever distance below this threshold.
"For me, the ongoing reading is a key account, and the dollar and dollar assets may lose their luster," he wrote in a note published Friday.
Mark Dowding, chief investment officer of RBC Bluebay Asset Management, said that as demand from international investors weakens and domestic buyers are going to absorb more supply, the "not difficult" yield is 6% or even higher.
He said positioning the steep curve (the shorter performance of long-term bonds) could be a better risk hedging rather than simply betting on lower yields.
(Always update the level.)
Most of them come from Bloomberg Business Weekly
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