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Treasury curve tug of war

The long term of the US treasury curve is going to get very interesting: on one end, we have the bullish case (high prices lower yields) thanks to those that think we might have a recession and want to lock yields for the longest time possible. Also in that camp are those that think that inflation is under control and therefore the #fed will start cutting soon. On the other end, we have the bank of Japan relaxing the yield curve control and pushing global 10 year bonds yields higher, we have a potential tsunami of treasury bond issuance to cover the budget deficit AND the refinancing needs which amount $7.6tn over the next 12 months, or 31% of all treasury debt outstanding (or 28% of gdp). In the demand side, banks will have a tough time buying duration, because they already have a huge interest rate risk in their portfolios, the #fed is in the middle of its #qt and #china is trying to defend its currency, and may not be buying many dollar denominated debt in the short term. Who will win the tug of war? And more importantly, what’s the equilibrium yield of the US long end of the curve?


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