The fate of long end USTs are well tied to long end JGBs. JGB volatility over the last two decades has often preceded volatility shocks in other markets. For example, the surge in 10Y UST yields in June 2003 was preceded by a 100bps increase in 10Y JGB yields. Ten years later, the May 2013 ‘taper tantrum’ set off a VaR shock across both DM and EM bond markets; notably, 10Y JGB yields had increased by c. 70bps in April 2013. 30Y JGB yields have bounced 100bps since 7 April 2025. This has set off a ripple impact on long end USTs too. Globally the fiscal expansion trend does not augur well for long end yields. It has started with JGBs, moved to USTs and will finally end up in Bunds too. The 40 year JGB auction on 28th May might be a litmus test for long end yields. We believe USD-JPY is vulnerable to re-testing downside support at 140. And we see the risk of a substantial re-pricing on a break of 140. This might be the indicator for further sell off in long end UST yields. US treasury secretary Bessent already knows the danger ahead for long end USTs. Last Friday he made comments about how enacting SLR relief was very close. To us it seems like he is jawboning the high level of 30yr USTs. At first it might work but then gradually the market will see through it. There is no way the SLR relief comes into play before Dec’25 and that too will be a choice for US banks. Some US banks who are already heavy investors in USTs might chose not to use SLR relief. Even if some add, they might buy the short end US treasuries rather the duration heavy segment of 10s-30s. Hence we don’t believe this is the end of uptick in long end bond yields globally. In US we believe we might see a structural melt up in long end bond yields as markets realise that inflation is sticky, fiscal deficits are ever worsening, rate cuts are far away & incremental DM debt investor flow is non-US centric. JGBs might suffer the same fate too because of higher inflation, BOJ’s policy inertia and local investor’s lack of demand for long end JGBs. We see 30 yr JGBs crossing 3.5% and 10yr USTs above 4.85%. It won’t happen over night but that is how the global rates might evolve over REMCY25.
