A bond market selloff has been driven by rising long-term yields amid high oil prices, inflation concerns, and uncertainty tied to the Iran conflict. Hot inflation data, lack of a deal to reopen the Strait of Hormuz, strong consumer spending, and labor market resilience pushed long-term yields to the highest levels since the Great Financial Crisis. Analysts attribute the shift to “bond vigilantes” returning as traders protest large deficits by selling bonds and pushing yields higher. Fiscal deterioration is described as compounding with reflation, turning a short-term issue into a long-end selloff. The yield curve steepened because long-term rates rose more than short-term rates, with the 30-year yield reaching 5.18%. The federal government is expected to issue more debt as cash flow weakens, and higher yields increase interest costs, potentially adding $2 trillion in debt if rates stay above projections.
"In our view, unsustainable fiscal dynamics are compounding with a reflation story, turning a short-term problem into a long-end selloff."
"But that's not the whole story. Economic data indicating more inflation as well as ongoing uncertainty about the Iran war preceded the bond market rout, BofA pointed out."
"However, the opposite happened as the yield curve got steeper with long-term rates leading the charge higher. In fact, the 30-year yield hit 5.18% on Tuesday, the highest since 2007."
"The federal government has already signaled it must issue more debt than expected as cash flow weakens with President Donald Trump's tax cuts delivering bigger refunds this filing season. Meanwhile, the jump in yields in recent months is making interest payments on U.S. debt costlier."
#us-fiscal-policy #bond-market-selloff #yield-curve #inflation-and-reflation #federal-reserve-expectations
Read at Fortune
Unable to calculate read time
Collection
[
|
...
]