Written by Davide Barbuscia
NEW YORK (Reuters) – The U.S. Treasury’s 10-year term premium, a measure of the compensation investors demand for holding long-term government bonds, fell as the resilience of the U.S. economy defied expectations for aggressive interest rate cuts and cuts. It’s back in positive territory this week. Election uncertainty weighed on long-term bonds.
Term premiums have been largely subdued for about a decade due to the impact of low interest rates following the 2007-2009 global financial crisis and the COVID-19 pandemic, but have declined in recent years amid long-term fiscal concerns and expectations. It has been gradually rising over the years. Inflation will likely remain stagnant.
On Monday, the 10-year term premium as measured by the New York Fed gauge turned positive for the first time since July 25, New York Fed data showed on Wednesday. It was 0.034% on Monday, down from -0.047% on Friday.
The move comes as U.S. Treasury yields soared after last week’s strong U.S. jobs report, prompting investors to refrain from betting on the size of future rate cuts by the Federal Reserve. I was disappointed. The benchmark 10-year bond yield hit a one-year low in September on expectations for monetary easing, but has since risen to more than 4% and on Wednesday hit its highest level since late July.
Matthew Miskin, co-chief investment strategist at John Hancock Investment Management, said the rise in term premiums is a sign that markets will He said this could indicate that the government is betting on the expansion of the government budget deficit under the administration.
A Reuters/Ipsos poll conducted this week showed Harris leading Trump by just 3 percentage points, 46% to 43%; It was smaller than the survey.
“What we’re seeing is that as former President Trump’s odds increase, so does the long end of the (treasury yield) curve,” Miskin said. “It’s very likely that the U.S. Treasury market is sniffing out more deficit spending, which will increase supply and push yields on long-term bonds higher.”
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Earlier this year, U.S. bond giant PIMCO predicted that term premiums would rise again due to sluggish inflation and widening fiscal deficits. The fixed income asset manager said in a note Wednesday that despite the outlook for lower short-term interest rates, widening U.S. deficits and inflationary trade policies after the Nov. 5 election could weigh on long-term Treasuries. Ta.
Inflation expectations over the next 10 years, as measured by the difference between the nominal 10-year Treasury yield and the inflation-protected 10-year Treasury yield, stood at 2.284% this week, the highest level since July 22.
(Reporting by Davide Barbuscia; Editing by Daniel Wallis)
