The Yield Plateau No One Saw Coming
Daniel von Ahlen of GlobalData TS Lombard highlights that the bond term premiuma key driver of long-term yieldshas remained broadly stable of late, despite mounting headwinds from tariffs, tighter immigration policies, and political unpredictability.
President Trump's move to withdraw U.S. forces from the Middle East and broker a ceasefire between Iran and Israel has diminished tail risks around the Strait of Hormuz, reducing haven demand for Treasuries.
With market pricing pointing to a terminal Fed funds rate of roughly 3% by end-2026, scope for additional cutsand thus for lower bond yieldsis largely used up. At the same time, fiscal deficits and muted hedging demand amid lingering geopolitical uncertainty are likely to keep the term premium elevated.
Von Ahlen advises positioning in GCC sovereign bonds over U.S. investment-grade corporates, expecting relative spreads to converge as Middle East stability improves.
Meanwhile, he argues the dollar's safe-haven status has wanedrecent de-escalation moves have erased DXY gains and set the stage for further weakness unless a clear catalyst emerges to reignite haven flows.
This article first appeared on GuruFocus.
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