(Bloomberg) — Whether you’re talking to Europe’s largest money manager, Australia’s giant pension funds or a cash-rich insurer in Japan, there’s one resounding message you’ll hear when it comes to U.S. government bonds: They are still hard to beat.
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Four months after incoming Vice President JD Vance said he was concerned Treasurys are facing a potential “death spiral” as bond vigilantes try to drive up yields, firms like Legal & General Investment Management and Amundi SA say they are prepared to give the new government the benefit of the doubt.
There are plenty of reasons for global funds to buy, even as government bonds are stuck in a historic bear market. The securities offer a huge yield premium over bonds from countries such as Japan and Taiwan, while Australia’s fast-growing superannuation sector is adding government bonds every month due to the depth and liquidity of the market. The US also seems a safer bet than some European sovereign markets struggling with their own budget problems.
Investors have also taken comfort in Trump’s appointment of hedge fund manager Scott Bessent as his Treasury secretary, who oversees government debt sales. Bessent, whose Senate confirmation hearing is scheduled for Thursday, wants to reduce the deficit as a percentage of gross domestic product through tax cuts, spending controls, deregulation and cheap energy.
“The risk of a ‘death spiral’ could trap any bond market in a cycle of mutually reinforcing higher rates and higher debt forecasts,” said Chris Jeffery, head of macro strategy, asset management at Legal & General Investment, the British bank. largest asset manager. But “the new Finance Minister has talked about aiming for a 3% deficit by 2028. Bond investors have no reason to strike if the federal government adopts such ambitions.”
The attitude of foreign investors towards government bonds is more important than ever. Foreign funds held $7.33 trillion of long-term U.S. debt at the end of October, about a third of the amount outstanding, and just below the record $7.43 trillion they held in September, based on the latest U.S. government data.
At the heart of the debate over whether to continue buying Treasuries is the largest U.S. federal deficit, barring extreme periods like the pandemic and the global financial crisis. There are some signs that investors are becoming skittish. The benchmark 10-year U.S. yield has risen more than a percentage point from September’s lows, threatening to breach the key psychological level of 5% again.