United States: Yields risk renewed surge – Rabobank

Rabobank's Senior US Strategist Philip Marey has warned that yields in US Treasuries could see a renewed surge. The Treasury Department's sudden decision to increase purchases of longer-term bonds has only temporarily halted the upward trend in yields. Despite this, the underlying economic conditions remain unchanged, with inflation high, budget deficits growing, and investment demand driven by artificial intelligence.

The Treasury's intervention, while effective in the short term, introduces uncertainty into the market by making debt issuance less predictable. This unpredictability could lead to higher risk premiums demanded by investors and could ultimately force the Federal Reserve to intervene. The Treasury's limited capacity to address the fundamental drivers of the economy means that it has largely resorted to market intervention instead.

This strategy, while providing temporary relief, is costly and unsustainable in the long run as the federal debt ceiling constrains the Treasury's options.