Thanks for this piece, you write bull steepening multiple times, which means that the whole curve rallies but 30y rallies less than the front-end. But what we have seen recently is twist steepening where front-end rallies while 30y sells-off. That kind of a price action would be consistent with doubts over Fed credibility, US govt. fiscal concerns. I wouldn't say a loss of confidence but definitely a pricing in of more term premium.
I agree with your point that a bull steepening of the curve is very normal as front end reacts more to policy tightening getting priced out. But 30y has been making new highs since the Fed first started cutting rates in this cycle
Thanks for your comment. My point is that the regime remains one of normalization as markets progressively price out further Fed tightening. The rise in the 30-year does imply a higher term premium, but I don't think that necessarily means investors are questioning US solvency or abandoning Treasuries, not even close. Term premia can increase because uncertainty about the long-run policy path rises, because dealer balance sheets have become less elastic, because Treasury supply has to be intermediated under tighter balance sheet constraints, there is much more to this story. Those mechanisms are quite different from the traditional "bond vigilante" story. The fact that the 30-year has continued rising since the first rate cuts actually reinforces that distinction for me: if this were primarily an inflation or fiscal panic, I would expect to see a much broader repricing of inflation expectations and intermediate maturities as well. Instead, the adjustment has been concentrated in the longest duration, where term premium and central bank uncertainty matter the most.
Thanks for this piece, you write bull steepening multiple times, which means that the whole curve rallies but 30y rallies less than the front-end. But what we have seen recently is twist steepening where front-end rallies while 30y sells-off. That kind of a price action would be consistent with doubts over Fed credibility, US govt. fiscal concerns. I wouldn't say a loss of confidence but definitely a pricing in of more term premium.
I agree with your point that a bull steepening of the curve is very normal as front end reacts more to policy tightening getting priced out. But 30y has been making new highs since the Fed first started cutting rates in this cycle
Thanks for your comment. My point is that the regime remains one of normalization as markets progressively price out further Fed tightening. The rise in the 30-year does imply a higher term premium, but I don't think that necessarily means investors are questioning US solvency or abandoning Treasuries, not even close. Term premia can increase because uncertainty about the long-run policy path rises, because dealer balance sheets have become less elastic, because Treasury supply has to be intermediated under tighter balance sheet constraints, there is much more to this story. Those mechanisms are quite different from the traditional "bond vigilante" story. The fact that the 30-year has continued rising since the first rate cuts actually reinforces that distinction for me: if this were primarily an inflation or fiscal panic, I would expect to see a much broader repricing of inflation expectations and intermediate maturities as well. Instead, the adjustment has been concentrated in the longest duration, where term premium and central bank uncertainty matter the most.
If you have a bit of time, I recommend you reading my other post on this subject: https://goghieas.substack.com/p/the-uncertainty-of-long-term-bond
nicely described Alex