One expert says bond markets are facing worries among investors regarding long-term interest rates and rising deficits.
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said in an interview with BNN Bloomberg Tuesday that investors are worried not only about the U.S. deficit, but also the stability of government finances around the globe.
“You’ve really had a lot of folks worried about rising long-term interest rates across the world. I think part of that is influenced by rising deficits all around the world. You’ve seen Europe funding more. You’ve certainly seen rising interest rates as well, playing a big part of this,” Goldberg said.
“And certainly, the rising deficit expectations for the U.S. are playing a big part as well. So you’ve seen term premium go up.”
Goldberg’s comments come as yields have been rising for bond markets around the developed world, especially in Japan, which saw a recent auction for longer-term bonds with relatively few buyers.
Meanwhile Treasury yields eased Tuesday, with the 10-year Treasury falling to 4.47 per cent from 4.51 per cent late Friday. Yields had been rising last week, partly due to worries regarding U.S. government debt levels.
“I think between the downgrade from Moody’s and some of the worries about deficits, there’s definitely, and certainly with trade uncertainty less we forget about that, there’s been a lot more questions being asked about the long-term stability of U.S. finances, the long-term U.S. debt. I think right now it’s more questions than actual flight.” Goldberg said.
Earlier this month, Moody’s Ratings became the last of the group of three major credit-rating agencies to say the U.S. federal government was no longer deserving of a “AAA” rating. The agency cited increased borrowing to pay for expenses alongside political issues making it difficult for Washington to rein in spending or raise revenues to address mounting debts.
Over the 10 years, Goldberg said the U.S. Federal Reserve is likely to be able to keep inflation, a key concern for bond investors, within its two per cent target range.
“We think they (Fed) will, at least over the next decade or so, certainly the next year or two are going to be a little bit more difficult, given some of the trade uncertainty,” he said.
“I think over the next decade, two per cent is still very much doable, especially if growth starts to moderate at a certain point because of all of this uncertainty.”
With files from The Associated Press.
