share_log

美债投资者开始感到恐慌!只因美国大选将至

US bond investors are starting to panic! Just because the US election is coming

Golden10 Data ·  May 24 21:21

Some investors believe that there is no end in sight to America's huge fiscal deficit, and that there are “big problems” on both the demand side and the supply side.

Investors are preparing for the US government to issue large amounts of debt. Over time, this may dwarf the expected rise in US debt because they believe that the huge fiscal deficit will not end before this year's presidential election.

Although the US bond market has been mainly driven by the market's interest rate cut bets on the Federal Reserve so far this year, market concerns about finance will become more prominent as the November 5 presidential election approaches.

Analysts and investors say reducing deficit spending does not appear to be a policy priority for President Biden and Republican challenger Trump. Although both candidate teams disagree with this view.

Some investors have begun allocating capital to avoid losses when US Treasury yields begin to soar due to an imbalance between supply and demand. Others worry that uncertainty about how much debt is required for deficit spending could eventually destabilize the $27 trillion US Treasury bond market. The US Treasury bond market is the cornerstone of the global financial system.

Ella Hoxha, head of the fixed income department at Newton Investment Management, said, “If we stop paying attention to the Federal Reserve and the possibility of sharp interest rate cuts in the next six months, then the supply data will not be healthy.” He is now optimistic about short-term US debt.

She said that the yield on the benchmark 10-year US Treasury is currently around 4.4% and may rise to 8%-10% in the next few years. “It's not sustainable in the long run.”

The so-called “bond police”, that is, punishing profligate government investors by selling bonds made a comeback last year, boosting the 10-year US bond yield to 5%. This is the first time in 16 years, but after the US Treasury slowed the pace of interest rate hikes in November last year, market concerns about the growth in US bond issuance have abated.

The US Treasury said in its latest refinancing announcement this month that it plans to keep the auction scale stable over the next few quarters. However, analysts said it is expected that there will be a larger bid for long-term bonds next year.

Federal debt held by the public could increase by $21 trillion to $48 trillion by 2034, according to the Congressional Budget Office (CBO). Meanwhile, traditional sources of demand for US government bonds are lagging behind. Foreign holdings cannot keep up with the increase in the amount of bonds issued by the US Treasury, and the Federal Reserve has been shrinking its holdings.

David Rogal, managing director of BlackRock Global Fixed Income Group and a multi-industry team member, said:

“This is one of the things we've been talking about internally. US debt not only has a supply problem, but also a demand problem. An environment where there are fewer underlying buyers and increased supply makes me think you'll see more term premiums over time.”

Both Democrats and Republicans have vowed to reduce deficit spending and debt levels. A White House spokesperson said that after the previous administration increased debt by a record 8 trillion US dollars and did not sign any laws to reduce the deficit, “President Biden has signed a $1 trillion deficit reduction bill and plans to reduce the deficit by another 3 trillion US dollars.”

Republican National Committee spokeswoman Anna Kelly said that Trump's “pro-growth and anti-inflationary economic policies will... lower interest rates, reduce deficits, and lower the level of long-term debt.”

However, as of now, given the US dollar's status as the main reserve currency and the size and depth of the US bond market, it is unlikely that the market's demand for US bonds will suddenly drop.

An analyst at J.P. Morgan Chase said in a recent report, “This is the most predictable crisis in history, but now it's more like a silent crisis. This is a 'tomorrow' problem, but not a current one.”

Despite this, some market players have begun to evaluate this issue. Jonathan Duensing, head of US fixed income at Amundi US, said that investors will put pressure on the Treasury to be more financially conservative, which will be expressed in the form that long-term US bond yields are higher than short-term US bond yields.

He said, “We are now more at the front and middle of the yield curve, and are generally more willing to stay away from the longer-term portion of the curve.”

One sign of weakening demand is that in the past year, in the 10-year US Treasury bond auction, investors demanded concessions from the government to buy these bonds more frequently than in recent years. Meanwhile, the premium on US 10-year Treasury bonds briefly fell back to a positive range last month.

Brij Khurana, fixed income portfolio manager at Wellington Management, said, “You probably don't want to hold so many very long-term US Treasury bonds until the election.”

Others have expressed similar concerns. Craig Ellinger, head of the American fixed income division at UBS Asset Management, said that short-term debt “appears to be a safer investment target when the deficit really gets out of control.”

Kathryn Rooney Vera, chief market strategist at STONEX, is preparing for a steeper US bond yield curve, partly because she expects large-scale issuance to put pressure on long-term US Treasury bonds. She said:

The best answer is to spend less, and neither party wants to do that.

edit/emily

The translation is provided by third-party software.


The above content is for informational or educational purposes only and does not constitute any investment advice related to Futu. Although we strive to ensure the truthfulness, accuracy, and originality of all such content, we cannot guarantee it.
    Write a comment