U.S. government debt yields are surging at a bad time. Here's what's behind the move
Fixed income market watchers ascribe a run that began in June to a number of variables.
TL;DR
- Treasury yields are climbing, especially for longer-dated debt, pushing the 30-year bond yield near multi-decade highs.
- Factors contributing to higher financing costs include growing budget deficits, inflation remaining above the Fed's 2% target, and a surge in corporate debt issuance.
- The rising term premium, an increased yield demanded by investors for holding U.S. debt, also plays a role.
- The U.S. budget shortfall in July was significant, projecting a $2 trillion deficit for the fiscal year, with total government debt nearing $40 trillion.
- Market veteran Ed Yardeni suggests current conditions are testing the limits of 'bond vigilantes' protest against fiscal conditions, while also seeing it as a vote of confidence in the economy's strength.
- Record corporate bond issuance is adding supply to fixed income markets, competing with Treasurys.
- The Federal Reserve's opaque stance on future rate hikes adds to market tension, with markets questioning the Fed's commitment to its inflation target.