30年期美债收益率重回2007年高位，债市脆弱性引关注

Is the bond market unraveling on a global basis? Well, the long ends, Tom, look very fragile. And then there's a completely different narrative. If you focus on, say, the two to the five year, because those bonds just about everywhere reflect what the policy rate is and where it's going to go. And the point is, if you take the two year Treasury, it's moved to price in three cuts now to two hikes or something like that.

So if you've got a 4 to 5 rate hike that move that explains the yield shift. Now in the longer end it's very different. You've got competition from hyperscalers. You've got equities performing so well that no young person understands why you'd buy a bond. And then you've got, um, concerns about fiscal policy which are good I suppose give you fiscal risk premium. But it would be wrong to put it all on the debt side of things.

It is a factor. But there's others. How do you respond to the American debt and deficit, where the Secretary of Treasury and many others? To be fair to Mr. Besson, want to have short term paper, lots of T-bills, lots of one year, lots of two year paper. Yeah. So they're doing that, aren't they? And it wouldn't surprise me if they shut down the issuance of the ultra long paper. But you can see it's getting a bit more fragile for the 30th paper.

So I think we've got a 20 year coming up. 20 years. And it never go well in the best of times. It's a very strange maturity. It kind of sticks out on the curve. Some people call it a dog for a good reason, but but I think they keep reducing the WAM, the weighted average maturity of the debt. Now that that causes other problems, doesn't it? Because it's refinancing risk. Go back to your fixed income textbooks. They've got more rollover all the time.

So you can do it to a certain extent. But at some stage there's going to be some fiscal responsibility. And one of the things I'm noticing now is that there were a few countries, Germany, Switzerland, even the U.K., to some extent have some kind of fiscal plan or debt brake in place when you've got that. It does give a lot more confidence to the bond investor. But when it seems the spending is just going up and up and up, and there's no constraint that that scares people.

But I'm not going to be one of those that says it's all about the debt, because it's clearly something else. Is the equity market doing well? Earnings being strong and the competition from hyperscalers. Steve we're going to hear from Fed Chairman Warsh and some others next week in Jackson Hole. Yeah. But one could argue the bond markets are already speaking. The ten year Treasury is a 470. I don't think we need them on the fed.

What do you expect to hear. Yeah. So the Jackson Hole is always a great stage. And uh, often you get set pieces released here. And in fact, I, I just wrote a notes on it this morning and I reminded myself there's, there's, there's been the Bernanke QE to there was Powell short speech in 2022 that told uh households that is going to get tougher, things are going to get tight, whatever the exact words, whether there will be some pain.

I think you said, um, you go back over the years and it can be a big swing factor. I think the big issue today is probably the Japan US bilateral relationship. The intervention, the potential use of the use of the repo lines, how that's supposed to work. Um, uh, I think pressure from the US on Japan to lift policy rates, all the, all these things are going to be quite interesting. Uh, normally these conferences deliver some quite lengthy, meaty papers by academic in nature.

Uh, but on the sidelines, you get interesting conferences when you get discussions and you'll have interviews that you'll be doing yourselves. So, you know, maybe we'll get some insight as to what Mr. Walsh's thinking is. He's been very clever so far not to let anyone know. So Tom and I were just mentioning this or noting this morning earlier, the Japanese tenure. It's at a 30 year high. What does that tell you? Well, there's a few interesting things happening over these last few months, and that we know that the Japanese government is starting to push the GPS and others towards buying some domestic bonds. and where the public sector goes, the private sector will follow.

So that gets to the point where the yield on Japanese bonds is just too attractive for those domestic investors, and they'll have to move in. Now, what they're going to sell is what they hold overseas. So they've got a lot of equities, not just bonds. People tend to focus on the Treasury market. I don't think that's where the risk is. The risk is what the Japanese investors might sell in equities and credit to bring back home to go into those really enticing yields.

But I think that to make those yields really attractive, the Bank of Japan paradoxically needs to be hiking rates. That may sound a bit odd, right? But they need to go. They need to get a grip on the long end, and the only way they can do that is by pushing the short yields up. I mean, Paul, can I say that Steven Majors moving the market because I've seen the market move here? Stephen Major, I got a creep on the 30 year U.S. from 5.252627.

And we just did essentially a jump condition to 5.28%. I mean, what is the ramification of the long and unraveling in France. The long and I get Japan as idiosyncratic, I guess, or the shocking deflation yields that we see in China. I'm not saying it's August 98th, but come on, there's a tension here and there are some parallels. And and I think you're right to be concerned. But the only point I would say is that it is August.

So may be the big movers and shakers apart from yourselves, of course, are not their desks. So it's it's, you know, it's that time of year. I think things do tend to happen in August. The, um, is the higher 30 year yield in France a trigger event? Probably not, because from the French Treasury's point of view, they've already issued their bonds. They're paying coupons at a lower rate. They two can shut down the issuance of the longer end.

So I think ultimately it's an opportunity for life insurance companies, long term investors to lock in high fixed term yields. But they have to be brave because quite clearly the momentum is against them.