Browbeaten long-bond investors got some relief on Tuesday as a global debt rally sent benchmark yields tumbling.Investors were lured to long-maturity bonds for the first time in weeks, offsetting — if only for a day — a selloff sparked by a deteriorating fiscal outlook and simmering tariff tensions. Thirty-year Treasury yields posted the biggest one-day slide since late March, following news on Tuesday that Japanese authorities may adjust debt sales following a market rout. Solid demand for a $69 billion sale of two-year Treasuries added to the advance in the US.
The day of gains comes even as President Donald Trump’s slew of tariff announcements and the passing of his signature tax bill in the House of Representatives slices into sentiment. Long-bond investors have fled the asset class in recent weeks as its so-called safe-haven status is called into question.
“There is a little bit more optimism. It’s certainly a calmer market,” Tony Rodriguez, Nuveen’s head of fixed income strategy, said on Bloomberg TV. Still, “We’re settling into a range that feels very tenuous because there’s so much uncertainty.”Earlier, Japanese authorities signalled they were considering adjusting their debt plan after a selloff that drove the nation’s long-term borrowing costs to the highest levels in decades. Concern about the ability of governments to cover massive budget deficits weighed on developed-market debt in recent days, pushing long-dated US yields toward levels last seen in 2007.“That potential lower issuance is giving Treasuries a nice helping hand,” said Michael Brown, strategist at Pepperstone Group in London. “For those seeking to buy long-term debt, lower Japanese government bond supply could force them into the Treasury complex.”Japan’s finance ministry sent a questionnaire to market participants on Monday evening asking for their views on issuance and the current market situation, Bloomberg reported. It was an unusual move and traders took it as a sign that authorities are seeking to stabilize the rout in long-dated bonds.
Some other governments have already shifted issuance toward shorter-dated tenors. The UK has been steering away from longer bonds given falling investor demand, a strategy that was reinforced by Jessica Pulay, head of the debt management office, in an interview published with the Financial Times on Tuesday.The yield on 30-year UK gilts fell as much as nine basis points on Tuesday as local markets were also shut on Monday, but the moves pared throughout the session. Similar-dated German rates dropped seven basis points to below 3%.The chance that Japan’s government will reduce its bond supply goes at least some way to addressing the worries over demand. But it doesn’t address wider concerns about government finances globally, raising the possibility that Tuesday’s bond rally is only a brief pause in the tumult.Japan’s bond market has also been squeezed by signs that the central bank may attempt to taper its huge holdings of government bonds further.“Long-end yields are experiencing some relief, but we think US yields will find it particularly difficult to shake off a bearish taint over the coming weeks and months,” said Benjamin Schroeder, senior rates strategist at ING. “The fiscal trajectory still matters.”US Treasuries have been in the spotlight since Moody’s Ratings stripped the government of its last top credit rating based on fiscal trends. The rout was compounded by the US House of Representatives last week passing Trump’s signature tax bill, which will increase the federal debt limit by $4 trillion.A measure of how jittery investors are about Washington’s plans to raise the scale of future borrowing, the 10-year US term premium, is trading near the highest level since 2014.US bond investors are now looking ahead to auctions of five- and seven-year debt later this week, as well as the release of the Federal Reserve meeting minutes, economic growth and inflation data.The decline in yields pushing the US 30-year yield back below 5% is “psychologically important,” said Kathleen Brooks, research director at XTB. “Risk sentiment is given a boost.”
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