Markets challenge anxiety over US government bond demand, borrowing risks


(MENAFN) Over the past two months, markets have been gripped by a palpable sense of anxiety, with questions looming about the demand for US government bonds and the potential risks of a buyer's strike that could unsettle global markets. The apprehension surrounding how investors would absorb the rapid issuance of new US Treasury bonds was not unfounded then and continues to be relevant today. The increasing borrowing requirements of the US government are a factor contributing to concerns, as they are expected to exert downward pressure on rates and elevate yields, influencing the market dynamics significantly.

While the issue remains a focal point for discussion, Stephen Major, Chief Bond Strategist at HSBC, emphasizes that "bonds are not potatoes," a metaphor he consistently employs to highlight the complexity of the situation. The relationship between bond prices and supply is not as straightforward as "more bonds equate to lower prices." Unlike potatoes, which may be subject to regulatory consumption constraints, bonds hold a distinct position as a long-term store of value.

Despite considerations about a potential buyers' strike, the bond market is undergoing a remarkable period. November emerged as the best month for this asset class in the United States in nearly four decades. This favorable environment prompted a notable decline in yields on standard US 10-year Treasury bonds, dropping from 5 percent in mid-October to approximately 4.3 percent at present. This, in turn, spurred the most significant monthly surge in global stocks since November 2020. The evolving landscape underscores the intricate interplay between bond markets and broader financial dynamics, highlighting the resilience and adaptability of these markets even in times of heightened uncertainty.

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