Why the Fed is doomed to remain the number one buyer of US debt

It was one of the sparks that set the bond markets on fire at the end of last week, causing the US 10-year rate to jump to 1.60%. For its 7-year bond issue, the US Treasury struggled to find a taker. This lack of interest is partly explained by technical reasons, as the 7-year yield did not really follow the upward movement in rates that began in January. But it also reflects a certain caution on the part of investors vis-à-vis the debt of the United States as the economy recovers.

During the Covid crisis, in fact, Treasuries – US government bonds – greatly benefited from their status as a safe haven. ” Now that rates are rising, and in a sustainable way, investors feel less motivated to buy bonds whose value can only fall. », Estimates Stéphane Déo, head of market strategy at Ostrum. When a bond’s yield rises, its price falls. ” In addition, continues the strategist, the violent movements in US yields could distract some investors who hedge against volatility.

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