Some Bonds Are Getting 'Twitchy,' Major Says

Summary

Steven Major discusses why long-end government bond yields are grinding higher, especially in U.S. Treasuries, citing fiscal risk premium, strong equities, Japanese spillovers, supply dynamics and credit concerns. He argues the Treasury should shift issuance away from long-dated debt and sees high-quality corporate bonds competing for capital against government bonds.

• Long-end U.S. Treasury yields are sticky above 5% with forces beyond Fed policy at work.
• Short- and intermediate-maturity Treasury yields are largely explained by policy rate expectations.
• Major says 30-year Treasury bond demand may get twitchy and Treasury should issue less long-dated debt.
• High-quality corporate bonds offer more yield than questioned U.S. sovereign credit.
• International spillovers are pressuring global long-end bonds, with JGBs currently cited.
• Strong equity performance raises the term premium demanded in bonds.
• Fiscal rigor and a U.S. debt plan would be welcomed by markets.