MacroResearchBoard

Rising Government Debt Burdens Never Seem To Matter, Until They Do – May 27, 2025

A just-published report updated our global fixed-income strategy. While the U.S.-led trade war is not over and may yet witness some steps back (such as occurred late last week), the risks to long-dated government bond yields are tilting to the upside.

Bond market drivers are shifting from worries about a global recession and expectations of lower central bank rate cuts to the stickiness of developed market (DM) inflation and greater government budget deficits. Keep in mind that the starting point for government finances in the major DM economies are historically large budget deficits and ever-higher public sector debt/GDP ratios, particularly in the U.S.

Bond term premiums should rise materially, particularly for U.S. Treasurys. We remain underweight duration in a global hedged fixed-income portfolio, and favor inflation protected securities, while betting on a steeper yield curve, particularly in the U.S. and Germany. Note that last week we also added two short bond positions in the MRB TradeBook, Bunds and JGBs.