“Avoid or short them”—Wall Street’s stark warning on long-term bonds as the U.S. debt outlook grows bleaker.
New York: In a resounding signal of distrust, major institutional investors in the U.S. bond market are expressing deep skepticism toward 30-year U.S. Treasury bonds. Amid mounting fiscal concerns and soaring federal debt, top investment firms like DoubleLine Capital, Pimco, and TCW Group Inc. are either avoiding long-dated Treasuries altogether or actively shorting them.
This sudden shift highlights a broader anxiety: long-term government debt, once seen as a stable, low-risk asset, is increasingly viewed as a liability amid ballooning deficits and rating downgrades. The long end of the U.S. yield curve has become a battleground for bond strategists.
🔺 Why Investors Are Turning Away from 30-Year Treasuries
At the heart of the concern is the worsening U.S. fiscal position, driven by surging spending, recurring debt ceiling crises, and a massive supply of new bond issuances. Confidence has further been rattled by credit rating downgrades from all three major agencies—S&P, Fitch, and most recently, Moody’s—stripping the U.S. of its coveted Aaa rating.
Against this backdrop, 30-year Treasury yields surged to 5.15% last month, nearing the highest levels since 2007. In contrast, yields on 2- and 5-year Treasuries have moderated, reflecting lower expectations of short-term rate hikes. This yield curve steepening signals investor reluctance to hold debt with long maturities, demanding significantly higher returns to compensate for long-term risk.
📊 Yield Curve: A Historic Divergence
A particularly telling signal is the spread between 30-year and 5-year yields, which crossed 100 basis points for the first time since 2021. This kind of spread is rare—last observed consistently in 2001—and indicates deep-seated fears about the long-term fiscal trajectory of the U.S. government.
💬 Expert Views: “Avoid or Short” is the New Norm
Richard McGuire of Rabobank captures the prevailing sentiment bluntly:
“The U.S. policy outlook is too bleak to attract buyers of long-term Treasuries.”
DoubleLine Capital’s Bill Campbell echoed this, saying the fund is actively shorting long-term bonds, betting on further yield curve steepening.
“In long-only strategies, we’ve effectively staged a buyer’s strike,” Campbell noted.
Similarly, Pimco’s Mohit Mittal confirmed the fund’s underweight position in long-term bonds.
“If there’s a bond market rebound, it will come from the 5- to 10-year segment, not the 30-year,” he explained.
🧾 Speculation of Auction Cuts Gains Traction
The bleak outlook is even leading some analysts to speculate that the U.S. Treasury might scale back or even halt auctions of 30-year bonds—a once-unthinkable scenario. JPMorgan’s Bob Michele commented:
“These bonds are not trading like risk-free assets anymore. There’s a real chance the Treasury could cancel upcoming auctions.”
The next key test comes on June 12, when the Treasury is scheduled to auction 30-year bonds. If demand weakens again, it could strengthen the case for reduced long-dated issuance. In fact, TD Securities has already forecast that the August refunding announcement could include plans to scale back long-end auctions.
Still, the Treasury remains steadfast. A spokesperson recently stated:
“Demand for bonds of all maturities remains strong, and the government will continue issuing in a regular and predictable manner.”
In its April 30 statement, the Treasury pledged to keep auction sizes stable for the next few quarters, despite mounting pressure.
🌐 Global Echoes: Not Just a U.S. Problem
The disinterest in long-term sovereign bonds is becoming a global theme. Japan recently saw its 40-year bond auction slump to its weakest demand since July 2023, while the U.S. 20-year Treasury auction last month also saw subdued participation. This broad retreat from long-duration debt is placing central banks and governments in a precarious position—balancing fiscal needs against investor appetite.
🧠 What It Means for Investors
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Risk-Averse Strategy: Investors are shifting focus to shorter-dated Treasuries that offer lower duration risk and still attractive yields.
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Expect Steepening: Many are betting that the yield curve will continue to steepen, with long-term yields rising faster than short-term ones.
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Inflation & Deficit Watch: These moves signal that inflation expectations and debt concerns are back at the forefront of market fears.
📅 Looking Ahead
The June 12 bond auction could prove a pivotal moment. If demand falters again, especially for 30-year Treasuries, the Treasury may be forced to rethink its strategy. Meanwhile, Wall Street will continue watching the curve steepening and government statements closely, with many institutional investors still favoring 5- and 10-year bonds as the safest bet in uncertain times.
As one strategist put it:
“You don’t want to be the guy standing in front of the steamroller right now.”
For more real time updates on US Bonds, visit U.S. Department of Treasury.
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