Bullish For Bonds?

‘Japanification’ and US Treasury Supply

 

The overall economic backdrop remains disinflationary, largely because of the whopping debt overhang.  Aside from the latest step-up in prices caused by supply-chain shortages, inflation is dormant. This leaves changing term premia as the main drivers of bond markets. They are determined by the balance between available liquidity and the supply of ‘safe’ assets. It follows that the Fed’s growing desire to ‘taper’; a prospective temporary rebuilding of the Treasury General Account to side-step the approaching US Debt Ceiling; the faltering World economy and the prospect of a smaller Democrat fiscal package should all keep US 10-year Treasury yields at the lower end of a 1-1 1/2 % range

 

 

 

 

See our latest published research, Global View - ‘Japanification’ and US Treasury Supply - August 2021