US government debt rout triggers ‘vicious loop’ of selling

{"text":[[{"start":10.75,"text":"US government bonds have posted their worst month in four years as investors warned the world’s most important debt market has been gripped by a “vicious loop” of selling."}],[{"start":21.9,"text":"US 10-year Treasury yields surged more than half a percentage point in September to 5.3 per cent, leaving them at the highest mark since 2007 and a whisker away from levels last seen in 2002. The scale of the move is unusual for a $32tn market that acts as an anchor for global finance."}],[{"start":43.4,"text":"The sell-off, initially driven by worries over US public debt and inflation, has now triggered waves of selling by funds, according to big investors and traders. They said a feedback loop had taken hold this week: yields rose to levels at which certain funds were obliged to sell Treasuries, setting off further bouts of bond sales that pushed borrowing costs higher. "}],[{"start":67.15,"text":"“It’s this vicious loop. And you have to wonder what is going to break it,” said Priya Misra, portfolio manager at JPMorgan Asset Management."}],[{"start":75.80000000000001,"text":"“This can keep going for a while,” she added. “No one wants to step in front of the freight train.”"}],[{"start":null,"text":"

"}],[{"start":81.65,"text":"A report on Wednesday showing that personal consumption expenditure inflation, the Federal Reserve’s preferred price gauge, had held steady at 3.4 per cent in August against expectations of an increase to 3.7 per cent did little to soothe investors."}],[{"start":97.65,"text":"Treasury secretary Scott Bessent’s decision in August to expand his department’s Treasury purchases has also failed to staunch the selling."}],[{"start":105.65,"text":"US borrowing costs have been rising since the Iran war began in February as a sharp increase in energy costs has worsened inflation, which is toxic for bonds that pay fixed streams of interest payments over years. A borrowing binge by big AI companies, strong US economic growth forecasts and American public debt exceeding $40tn have also played a role in pushing up yields."}],[{"start":130.45000000000002,"text":"But now technical factors are playing a significant role as well."}],[{"start":134.75000000000003,"text":"Among the big forced sellers of long-term Treasuries this week have been hedge funds and real estate investment trusts, which hold large portfolios of mortgage-backed securities, said Matthew Scott, global head of trading at AllianceBernstein."}],[{"start":148.85000000000002,"text":"He said that as borrowing costs rise, Americans become more reluctant to pre-pay their mortgages. For investors holding mortgage-backed securities, this extends the timeline over which the mortgages are paid off, so they have to ditch other long-term debt such as Treasuries to compensate for the shift."}],[{"start":168.50000000000003,"text":"There is a similar dynamic happening in other corners of the market, such as a rebalancing of portfolios by leveraged funds with big positions in the Treasury futures market, said Amrut Nashikkar, analyst at Barclays."}],[{"start":180.65000000000003,"text":"Daniel Gottlander, head of North America swaps trading at Citi, echoed that sentiment."}],[{"start":187.30000000000004,"text":"“When you have these sell-offs you will need to reduce risk in other parts of the portfolio. That’s why it all happens at the same time. There’s a lot of spillover effects,” he said. "}],[{"start":197.00000000000003,"text":"While these effects are typical in a big sell-off, there are usually investors willing to step in and buy bonds at cheap prices, which can stabilise the market. That is not happening, said Gottlander. “The marginal buyer hasn’t shown up yet.”"}],[{"start":218.15000000000003,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790821347_2746.mp3"}