US Rates Strategy Weekly

Key arguments

• 10-year Treasury yields touched 4.80% this week, highest since May 2025, but term premium remained range-bound.
• Heavy corporate debt issuance, Fed policy uncertainty, and oil prices pushed the term premium to the upper end of its range.
• Treasury buyback announcement and Chair Warsh's hawkish tone reversed the upward drift in the term premium.
• Fiscal sustainability concerns have not pushed the term premium outside its post-2025 range.
• Bonds have sold off for six consecutive months since March, and history suggests favorable risk-reward for lower yields.
• August CPI expected at 0.3% m/m (3.3% y/y), core at 0.2% m/m (2.4% y/y), driven by gasoline and shelter dynamics.

Corresponding source evidence

1. But the upward drift in the premium was reversed following the Treasury’s buyback announcement . Although Chair Warsh did not provide any forward guidance at his Jackson Hole appearance, his hawkish tone seemed to alleviate concern that the Fed had lost some of its inflation-fighting credibility, pulling the premium lower. · recent
2. Irrespective of when actual buying materializes, elevated yield levels alone could encourage investors with short positions to begin covering. Similarly, 10-year Bund yields recently touched 3.40%, a level where we expect demand to emerge. · near-term
3. Yields have risen for six consecutive months. Since 1970, there have been only three other instances of such a streak, and only two episodes that extended to a seventh consecutive monthly increase. History suggests that the risk-reward increasingly favors positioning for lower yields following such an extended move higher. · 6-7 months