US 30-year yields rise to the highest since May

The bond market got a reprieve on Friday with the cooler PCE report. You would think today’s soft consumer confidence data would also help bring down yields but that’s not the case.

Instead, US 30-year bond yields are up 6.3 bps to 4.78%, which is the highest since May. The late-April high of 4.85% is now within striking distance and I suspect that would set off alarm bells.

I think this one is more about congress than the underlying economy. Trump made a big fuss about ditching the debt ceiling, which isn’t exactly a sign of fiscal restraint. Congress will have to decide how to extend the Trump corporate tax cut in the year ahead and we will also see how serious they are about bringing down the fiscal deficit, which is running around 7% of GDP.

Surely there is some low-hanging fruit in government but so much of the budget is now spent on interest, the military and entitlements that it’s tough to make a dent without any help on the revenue side. The fear is that we get some kind of Liz Truss moment and a jump in yields, particularly if we get more inflationary spending.

Despite all this angst, there is a contrarian call for buying bonds as just 2% of fund managers see government bonds as the best-performing asset class in 2025:

This article was written by Adam Button at www.forexlive.com.