US Treasury yields have surged in recent days, sparking concerns about the market’s appetite for riskier assets. The selling pressure on Treasuries has been fueled by a combination of factors, including tariffs, recession risks, and inflation concerns.
The “sell America Inc.” narrative suggests that frustrated players are selling Treasuries, potentially driven by political sentiment or relative value play. However, other macroeconomic factors, such as price rise risks from tariffs and a fear of unfunded fiscal deficits, point to an upside in Treasury yields.
A recent 3-year US auction saw poor demand, with the yield concession being nearly 2.5 basis points. This echoes the “accord” seen in European markets, where global central banks lap up short-term dates. The 10-year swap spread has also widened to 60bp, making Treasuries relatively expensive compared to risk-free rates.
Margin calls on leveraged players have been a point of discussion, as they can amplify market reactions to falling Treasury prices. While the system is holding up despite rising yields, there are limits to its resilience. The big question now is whether the Federal Reserve will intervene, potentially through an intra-meeting rate cut or Treasury purchases.
The uncertainty surrounding Treasuries has led to a shift in investor perception, with some viewing them as a tainted product. As global economic conditions continue to evolve, investors will be watching for signs of Fed support and further market moves.
Source: https://think.ing.com/articles/rates-us-treasuries-have-become-a-pain-trade