Long-Term Bond Market Trends Worldwide

EndGame Macro: A major shift is underway in global bond markets, and it’s starting in Japan. Japanese life insurers some of the largest institutional investors in the world are now selling Japanese government bonds (JGBs) at the fastest pace on record. Why? Because their duration gap has turned sharply negative for the first time in modern history. The duration gap measures the mismatch between the interest rate sensitivity of assets and liabilities. A positive gap means an insurer’s assets (like long-term bonds) respond more to rate changes than their liabilities (like annuity payments), which is generally manageable. But now, the gap has flipped to −1.48 years, the lowest on record. That means rising interest rates are hammering insurers: their liabilities are becoming more expensive faster than their assets can keep up forcing them to unwind long-duration holdings to stop further P&L damage. You can see this in the chart that from 2016 to 2020, insurers comfortably held a 4–5 year positive duration gap. But that edge eroded as Japan’s long-term yields rose and BOJ Yield Curve Control lost credibility. Now that the 30-year JGB yield has breached 2.75%, these insurers are facing mark-to-market losses and they’re being forced to sell into weakness. The second chart shows the result that net JGB flows from Japanese life insurers have plunged into deep negative territory through early 2025. This is not a tactical rotation it’s a systemic duration de-risking event, and it’s happening in the world’s most tightly held sovereign bond market. Why this matters globally: •Japanese lifers are major holders of U.S. Treasuries, European sovereigns, and global credit. If they’re de-risking at home, they may need to sell foreign assets too, creating ripple effects across global bond markets. •A withdrawal of Japanese capital means fewer buyers for long-duration debt at a time when the U.S. and Europe are issuing record amounts of it. •It signals the limits of central bank yield suppression. The BOJ may be forced to step back in with stealth QE or risk a bond market crisis. •It also injects volatility into FX markets particularly USD/JPY as capital flows repatriate or hedge mismatches widen. Bottom line: This isn’t just about Japan. It’s the leading edge of global duration stress. The BOJ’s failure to maintain policy control is forcing private capital to do what central banks fear most exit long duration at scale. The Japanese lifers are the canary. If this continues, other markets will follow. Watch the yield curve, watch FX hedging costs, and most of all watch what they sell next.

Global term premia are rising. And Japan's curve is showing it most clearly. After a decade of compressed curves and suppressed term premia, the tide is turning. We’re seeing a regime shift in global bond markets. Term premia, the risk premia and compensation for holding long duration bonds, are rising again. Ironically, and for much of the 2010s, Japanese (and German) yields were the global low yield anchors with negative term premia. Now Japan leads the pack. Why? Three drivers: 1) BoJ balance sheet reduction (quantitative tightening), 2) fiscal concerns, 3) political uncertainty. But there is a neglected point in all of this: Ahead of Japan’s new solvency rules (April 2025), Japanese insurers bought ultra-long JGBs to match liabilities under a market-consistent framework. Now that shift is largely complete. Insurers are no longer adding JGBs at the same pace as a result of the rule change. And with that, a major anchor of the long end is gone, at least for now. So, term premia are back. And they are emblematic of a new macro-financial regime where supply, duration risk, and policy volatility matter again.

The OECD - OCDE Global Debt Report 2026 presents a comprehensive assessment of sovereign and corporate #debt dynamics in an increasingly complex macro-financial environment. The report underscores that global debt markets have demonstrated notable resilience despite geopolitical tensions, inflationary pressures, and tightening financial conditions. In 2025, governments and corporations borrowed a record USD 27 trillion, with projections rising to USD 29 trillion in 2026, reflecting structurally elevated #financing needs. A central theme is the growing pressure on debt #sustainability. Persistent fiscal deficits, higher interest rates, and significant investment requirements—particularly linked to #energy transition and #AI #infrastructure—are driving continued borrowing. Sovereign debt in OECD countries reached approximately USD 61 trillion in 2025, with debt-to-GDP ratios expected to rise further to around 85% in 2026, signaling mounting fiscal strain. The report highlights a structural shift in debt markets. Central #banks are reducing their #bond holdings, leading to a transition toward a more price-sensitive and diverse investor base, including leveraged and short-term investors. While this diversification enhances #liquidity, it also increases vulnerability to market shocks and volatility. Another critical development is the shortening of debt maturities. Governments and corporations are increasingly issuing shorter-term debt to mitigate high long-term borrowing costs. However, this #strategy significantly raises refinancing risks, with global refinancing needs reaching record levels (around USD 13.5 trillion in 2025). In corporate markets, borrowing reached historic highs, supported by relatively low credit spreads despite macroeconomic uncertainty. The report emphasizes the growing role of debt in financing AI-driven #capital expenditure, with large technology firms becoming dominant issuers. This evolution may reshape bond markets, increasing sector concentration and aligning #risk characteristics more closely with equity markets. Despite surface-level stability—characterized by moderate volatility and tight spreads—the report cautions that underlying vulnerabilities are accumulating. Rising interest costs, evolving investor structures, and elevated refinancing needs could amplify systemic risk if macroeconomic conditions deteriorate. The OECD concludes that sustaining debt market #resilience will require sound fiscal management, strong institutional frameworks, and policies that enhance productivity and long-term growth. Without these, the combination of high debt levels and structural shifts in #market dynamics may constrain future borrowing capacity and increase the likelihood of financial instability. #finance #fintech #banking #investments #strategy #governance

Structural Repricing, Labor Inertia, and What the Market’s Missing Markets are grappling with a rare, structural repricing at the long end of the U.S. yield curve—not driven by panic, but by shifts in fiscal, in capital flows, and investor expectations. Across the UST curve, 30-year yields are rising while 2s, 5s, and 10s rally. This kind of sustained steepening alongside front-end strength is a dislocation rarely seen. The market is questioning whether the long bond still deserves its historical risk-free premium. Real-money investors are repositioning. Pimco, DoubleLine, and TCW have publicly flagged long-end underweights. Open interest in ultra-long bond futures has fallen sharply. The 30-year now trades near or above the Fed’s estimated long-run neutral rate. Investors are demanding more term premium amid massive fiscal deficits and inflation volatility. ***Crowding out of the private sector is not theoretical--is already underway. Budget deficits remain above 6% of GDP. Treasury auctions, especially at the long end, are seeing weaker demand. Foreign buyers like China and Japan are stepping back. The Fed isn’t in the game. Term premium models like Adrian, Crump, and Moench from the New York Fed and Kim-Wright model confirm what markets are pricing: capital is getting more expensive, and investors want to be paid for holding duration.*** Credit markets are showing early signs of stress. CCC bonds are down nearly 3.5% YTD, dispersion is rising, and high-yield spreads are widening quietly. It’s not a credit event yet—but the cracks are forming. On the labor side, inertia is defining the cycle. The unemployment rate remains low, but it masks labor hoarding. Firms are reluctant to fire—but not hiring either. JOLTS data confirm this: hiring has slipped to 3.4% from 3.9% pre-COVID, while the discharge rate is down to 1.1%. Quit rates are also lower. As our senior adviser Jon Hilsenrath put it: this is a wait-and-see labor market. Not expansion. Not contraction. Just frozen. This leaves the Fed boxed in. A “bad cut” (in response to labor weakness) likely requires the unemployment rate to rise to ~4.5%, per Fed guidance. Labor dynamics don’t support that path. The “good cut” (disinflation without job losses) remains possible, but tariff-driven inflation risks could derail it. Bottom line: The long end is breaking for structural—not cyclical—reasons. The curve is steepening due to supply, deficits, and lost sponsorship—not stronger growth. Real-money is rotating into the belly. Credit is weakening quietly. Labor is frozen. Capital realignment and workforce inertia are defining this phase of the cycle. Full memo and desk-level flow detail: https://lnkd.in/eezuYXAM #macromarkets #inflation #rates #bonds #credit #StoneX #labor #fiscalpolicy #crowdingout

🗓️ The big macro story to start 2025 has been the continued, relentless rise in global bond yields …what does it mean for investors? 1️⃣ History tells us that it is unusual for bond yields to rise once the interest rate cutting cycle starts (see chart) Part of the story for higher bond yields has been a big revision in expectations for interest rate cuts in 2025. Today, investors assume 1-2 cuts from the US Fed and Bank of England this year. Back in September, analysts were pencilling in 5 cuts 2️⃣ Yield curves continue to steepen, but it’s not all about inflation Yield curves are “bear steepening”, as long term bond yields rise faster than short term rates. Normally, this pattern reflects reflation and rising inflation expectations. But this time around, long term inflation expectations have remained stable 3️⃣ Economists disagree why long term yields are going up Yield curve steepening is caused by a rising “term premium” – they say. This is a catch-all term that economists use for yield curve moves that they can’t explain. Rising global yields and steeper curves could be due to fiscal policy (what I have called “deficits forever”), expectations for more long term bond issuance, or even concerns of a policy mistake… 4️⃣ While rates rise, growth cools The big problem is that while interest rates are rising, growth momentum has disappeared. A broad measure of US economic activity published by the Chicago Fed shows subdued US growth since September. Economists expect global growth to cool in 2025. And Europe is in its own growth quagmire. This adverse shift in the rates-versus-growth arithmetic puts the whole macro system under pressure 5️⃣ Rising bond yields matter for all asset markets in 2025 The year 2024 was unusual because although short term interest rates markets were volatile, the credit and stock markets were calm. But the relentless rise in long bond yields – if not offset by better news on growth – is likely to matter for all asset classes in 2025. As macro and policy uncertainty rises, market volatility follows. The case for an active and opportunistic approach to investing in 2025 looks strong 🔔 Like and follow for more global macro and investment market updates #economy #investing #bonds Chart from HSBC AM Investment Weekly

Everyone I read is bearish on bonds. Here’s the part of their case that sticks. 📉 Real returns look poor. It’s called fiscal dominance. And means that even if Treasuries manage to preserve value in nominal terms, they’ll lose ground after inflation. ⚖️ Term premia are back. Rising deficits and debt supply leads investors to demand more compensation on longer bonds. 💸 Supply tsunami. The net Treasury issuance is $2–3 trillion a year, the gross more than $10 trillion. Those tidal waves of paper press on yields no matter what the Fed does. 🔥 Inflation risk isn’t gone. Headline CPI may cool but wages, services and housing mean long-term volatility rules. 🌍 Foreign buyers are fading. China and Japan are no longer the anchor bid for Treasuries that they were. 🔒 Spreads aren’t a cushion. From AAA to BBB to HY, credit is trading like one blur. That’s not stability, it’s complacency. Advisers don’t have to tell clients that “bonds are dead.” But they do have to explain how the old signals, Treasuries as ballasts and spreads as risk meters, aren’t working in line with the way they used to. 💬 If bonds are indeed dead, what fills in for them in a 60/40? #BondInvesting #CreditSpreads #Treasuries #Inflation #MarketOutlook

We're Having One of The Worst 10-Year Runs for Treasuries This Century The 10-year annualized return for the iShares 20+ Year Treasury ETF (TLT) currently sits at -0.94% (per year). That means investors in long-term government bonds have lost nearly 1% per year for a decade, even after accounting for income. That’s a dramatic departure from the long-term average of 5.34%—and it’s left many wondering: Do bonds still make sense in a diversified portfolio? Here’s what’s often overlooked: Bonds are one of the few asset classes where we can reasonably forecast future returns. Unlike equities—where even long-term outcomes can be highly unpredictable—bond math gives us a powerful tool: the current yield. While current yield doesn’t tell us much about what will happen over the next 12–24 months, it does a surprisingly accurate job of predicting average annual returns over the next 10 years. So what’s the yield on 20-year Treasuries today? ➡️ 4.93% That suggests long-term bond investors buying today could see returns near 5% annually over the next decade—a strong reversal from the last 10 years. Yes, recent returns have been dismal. But for long-term investors, that pain may have set the stage for much better outcomes ahead. This is your reminder: Don’t abandon any investment based on backward-looking results. Focus on where we are today—and what the math says about the road ahead.

Despite some short-term relief from month-end rebalancing, we believe that government bond yields face upward pressure over the medium term from a supply/demand perspective. There are two duration shifts that present a headwind for government bonds over the medium term. The first duration shift has been taking place in demand and has to do with the retail impulse into bonds. The YTD pace in bond funds is tracking pace of around $450bn-$500bn, a sharp decline from the $1.36tr seen in 2024. The picture looks even more problematic for bond demand if one takes into account the duration impulse. Not only have bond fund inflows slowed sharply this year relative to 2024 but these inflows have shifted away from longer duration government or corporate bond funds towards short duration funds. In other words, there has been an even bigger decline in bond fund demand in duration terms. The second duration shift has been taking place in supply. While the duration impulse of corporate bond issuance has been flattening out as corporates reduced sharply the maturity of their issuance, the duration impulse of government bond issuance continues to rise widening its gap with corporate bond issuance. This is shown in the chart below which depicts the notional amounts of USD corporate bonds in 10y-equivalent terms along with the equivalent metric for the Treasury excluding Fed holdings. In other words, much of the duration supply has been stemming from government bonds rather than corporate bonds.