Bond bears return as long-term yields surge past 5%

In JPMorgan Chase & Co’s latest Treasury client survey, investors’ net long positioning shrank to the smallest in six weeks. — Bloomberg

WASHINGTON: A bearish tone is taking hold in the Treasury market amid worries over the risk of tariff-fuelled inflation and increased government spending in some of the world’s biggest economies.

In JPMorgan Chase & Co’s latest Treasury client survey, investors’ net long positioning shrank to the smallest in six weeks.

That coincides with selling pressure in US government debt, which picked up on Tuesday after June consumer price data failed to assuage concerns over the impact of trade levies.

In response, investors trimmed bets the Federal Reserve will cut interest rates as soon as September. 

The 30-year Treasury yield climbed above 5% for the first time since early June, and there were large flows seen in options bets costing a combined premium of about US$10mil that target a jump to around 5.3% within roughly five weeks.

The rate on the long bond hasn’t been that high since 2007.

The fresh bout of angst toward the United States 30-year bond follows a slump in Japan’s longer-dated government debt this week as investors brace for the prospect of increased fiscal stimulus there in the wake of upper house elections this coming Sunday.

Yields on Japanese bonds from the 10-year to the 40-year have spiked this week, echoing the surge seen in global markets in May.

There are other bearish signals coming from the options market.

The so-called skew on 30-year Treasuries has moved sharply over the past week toward put premiums as investors demand increased protection against higher yields and a bigger selloff in long-dated debt.

That leaves long-bond options favouring puts by the most in about a month. — Bloomberg