We're Seeing a 'K-Shaped Bond Market' Says Guneet Dhingra

Summary

BNP Paribas US rates strategist Guneet Dhingra argues that Treasury buybacks are a small Band-Aid against heavy supply and deficit pressures, so long-end US yields should keep rising. He also sees a K-shaped bond market, with 2-year yields down and 30-year yields up, and notes equities are signaling growth strong enough to withstand high rates. He expects European bonds to be relatively more stable as the ECB hikes once more then holds.

• Treasury buyback announcement is viewed as a Band-Aid, tiny relative to hyperscaler issuance and net Treasury supply.
• The 30-year long bond yield around 5.25% is described as normal, not restrictive, given growth and inflation.
• Fed credibility is challenged: addressing it could require more hikes, while inaction could keep long-end yields selling off.
• The bond market is described as K-shaped, with 2-year yields down and 30-year yields up since the July FOMC.
• Steepening is driven by lost Fed credibility, massive hyperscaler issuance, and ballooning deficits.
• Equity strength in small caps and S&P 500 Equal Weight suggests growth is outweighing high-rate pressure.
• The ECB is expected to hike once more in September then hold, supporting relative stability in European bonds.
• US debt is rising linearly, and rising interest burden is making markets less able to ignore deficits.