Bond Traders Push Back: Governments Face the Price of Fiscal Indiscipline

Published 22/05/2025, 20:24

US 30-year yields are flirting with the 5.10% area. Even in Japan, 30-year yields have surpassed the 3% level.

Bond markets are on fire again all around the world.

Let’s make things clear: this is not about the US only, it’s about a bunch of countries acting as the US does.

Here is the unfriendly policy mix that long-end bond markets are hating:

1. Core inflation above target

2. Central Banks communicating a dovish stance with forward rates below neutral

3. Governments loosening their policy stance with fiscal deficits

On top of this, there is also a demand/supply imbalance emerging.

Fiscal deficits expand the supply of bonds, and the marginal buyer is now asking for a higher compensation (higher yields) to take on long duration risk given the cocktail above.

The chart below shows the YTD increase in 30-year yields (in bps) for a basket of countries behaving as described above.


US, Japan, Canada, Australia and the UK are all embarking in looser fiscal policy with core inflation above target and their Central Banks keep having a proactive dovish stance.

Do you think the bond market will continue revolting until governments and Central Banks adjust their policies?

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