Foreign Funds Dismiss US Bond 'Death Spiral' Concerns: 'Treasury Too Large And Liquid...To Undermine Treasuries In Global Central Bank Reserves'

Amid rising concerns about a potential “death spiral” in the U.S. Treasury market, major international investors remain unfazed. Despite warnings from incoming Vice President JD Vance, foreign funds continue to show confidence in U.S. bonds.

What Happened: European money managers, Australian pension funds, and Japanese insurers are still favoring U.S. Treasuries, attracted by their yield premiums compared to other markets. The depth and liquidity of the U.S. market further enhance their confidence, Bloomberg reported on Thursday.

Investors are also optimistic about Donald Trump‘s decision to nominate hedge fund manager Scott Bessent as Treasury Secretary. Bessent’s plans to cut taxes and deregulate to reduce the deficit have reassured many investors, according to Bloomberg.

Foreign funds held $7.33 trillion in long-term U.S. debt by the end of October, slightly below the record high in September. Despite the increase in U.S. yields, Japanese and European investors remain committed to Treasuries, viewing them as a stable option amid global fiscal challenges.

"The dominant view in markets is that the U.S. Treasury market is too large and liquid and U.S. seigniorage too deeply entrenched to undermine the central role of Treasuries in global central bank reserves,” Naomi Fink, chief global strategist at Nikko Asset Management in Tokyo mentioned.

Why It Matters: The U.S. bond market is experiencing significant pressure as Treasury yields approach levels not seen in nearly two decades. The yield on the 10-year Treasury has surged over 1% since September, nearing the crucial 5% threshold. This rise in borrowing costs comes as markets reassess Federal Reserve rate cut expectations amid stronger economic data.

Despite these challenges, some analysts believe the market may be overreacting. The 30-year Treasury yielded 4.95% by the end of a recent trading session, with the 10-year Treasury reaching an intraday high of 4.790%. This yield increase followed a strong nonfarm payroll report for December, which saw the economy add 256,000 jobs, far exceeding forecasts.

Price Action:

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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