(Bloomberg) -- Treasury yields have been rising so fast that there’s a risk of bond market turmoil resembling the upheaval that led to the resignation of then British Prime Minister Liz Truss, according to Apollo Global Management’s Torsten Slok.
With 10-year yields now at 4.6%, the highest since May 2024, there’s concern about how the US will manage its ballooning debt burden, especially at a time that incoming President Donald Trump has promised to deliver tax cuts.
It could be a “potential Liz Truss moment,” said Slok, chief economist at Apollo, in an interview on Bloomberg Television.
In 2022, investors rebelled against Truss’ spending projects, triggering a market meltdown that crashed the pound, spent UK yields spiraling higher and pushed pension funds to the brink of collapse. While most mainstream investors would say that it’s unlikely the US would repeat that level of turmoil, there have been worries bubbling up that Trump’s policies will fan inflation and unsettle bond investors.
Bond Market’s ‘Dark Matter’ Gauge Hits Highest Since 2015
Another indication of bond market anxiety can be seen in a metric called the term premium, which is the additional yield that investors demand to hold long-dated debt instead of rolling over shorter-term securities as they mature. It recently hit the highest level since 2015.
“80% of the increase in long rates since September has potentially been driven by worries about fiscal policy,” said Slok. “Higher for longer has a number of consequences that brings back memories of what we saw in 2022.”
Equity investors will also suffer if Treasury yields stay high and companies have to face persistently high borrowing costs, said Slok. In 2022, US bond yields surged and the S&P 500 fell 19%.
--With assistance from Cecile Gutscher.
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