Betashares chief economist David Bassanese has joined the bond yield conversation.
As a little backgrounder, traders are selling bonds this week due to the Iran war, the US fiscal position, rising inflation, Japanese economic troubles, among other reasons.
It’s seeing the yields on those bonds push up to levels not seen since just prior to the global financial crisis.
Bond yields move inversely to prices.
Perhaps the biggest surprise this week was the US Treasury’s announcement that it would be buying longer-dated Government bonds, presumably with a view to limit the current upward pressure on yields.
As with currency or even equity market intervention (recall China’s 2015 actions), intervention of this kind seldom works, especially over the long run when inconsistent with underlying fundamentals.
The current upward pressure on yields largely reflects nervousness around US inflation, especially with oil prices moving higher again.
Uncertainty around whether the Fed will act to contain inflation if need be is also a factor, as is the competing demand for capital from both the US government and the AI industry.
All up, I would not count on Treasury intervention containing rise in bond yields if US inflation and debt concerns persist.
The best hope for bond markets is that the recent easing in US inflation continues and/or Treasury Secretary Bessent gets serious about tackling the US budget deficit.
