Long-End Government Bonds to Attract Investors with High Term Premium

On June 26, The Wall Street Journal reported renewed investor interest in Long-End Bonds. Barclays’ rates strategists noted signs that future U.S. debt issuance may shift away from the long end. As most of these long-end bonds are now sold off and new issuance would involve high term premiums. Weaker economic growth is among the factors behind this change, along with overall fiscal uncertainty. Investors are looking for greater compensation for holding longer-term Treasury debt due to heightened concern over policies. Barclays emphasized that a high term premium is now a consistent feature of bond markets globally.

High Term Premium Reflects Increased Risk in Longer-Term Treasury Debt

The need for a High term premium reflects the risk of holding bonds for 10 to 30 years. Investors now want greater yield due to the uncertainty over long-term economic stability. This pattern is especially evident in longer-term Treasury debt, where yields are under upward pressure. In the U.S., concerns include future fiscal policy and potential changes in government spending. Globally, Germany’s expected spending increases and weak demand in Japan and the U.K. are contributing. These factors are pushing investors to demand more for taking on duration risk in the bond market.

US Treasury Yields Show Stability Within Narrow Trading Range

US Treasury yields have slightly declined recently but stayed within a narrow trading range. Pepperstone strategist Michael Brown said Wednesday’s mixed auction results helped reinforce this tight yield range. He pointed out that 10-year and 30-year yields stood at 4.268% and 4.810%, respectively. Despite small declines, yields are not expected to fall further without major fiscal improvements. Brown observed that investors are buying during dips, which keeps yields from dropping too much. This behavior maintains a steady support level for longer-dated U.S. Treasury debt.

Barclays Forecasts Continued Volatility in Long-End Bonds 

Barclays’ Mid-Year Outlook 2025 said Long-End Bonds are likely to remain the most volatile market segment. The firm noted that 30-year yields are increasingly driven by supply-demand imbalances rather than rate expectations. Even less yield-sensitive investors now seek greater term premium, indicating a shift in market behavior. The upward trend in yield floors suggests that investor expectations are changing in a structural way. This dynamic reflects a long-term adjustment rather than a temporary reaction to market news. As a result, longer-term debt markets may experience ongoing volatility.

US Fiscal Deficit and Debt Growth Add Pressure to Long-End Bond Market

US fiscal dynamics are adding further complexity to the long-end bond market picture. Current projections show the fiscal deficit remaining near 6% for multiple years. That would increase the national debt from 100% to near 130% of GDP in 2034. Already, 20% of federal tax revenues are dedicated to servicing interest. Rising borrowing costs combined with higher debt loads make long-end debt financing more sensitive. This pressure may lead to higher yields as investors seek greater compensation for long-term commitments.

Foreign demand for US debt is another variable in the outlook for Long-End Bonds. Right now, foreign investors hold around 30% of outstanding Treasury securities. If trade balances shift, this share could fall, affecting long-end bond demand. Donald Trump’s position on reducing trade deficits could lower foreign demand for US debt instruments. With fewer foreign buyers, domestic investors might need to take on more of the long-end issuance. That could lead to additional upward pressure on yields if domestic demand doesn’t increase significantly.