At Any Rate Global FX & Global Rates: Term premia rising: implications for rates and FX
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May 23, 2025 Jay Barry, Head of Global Rates Strategy at JPMorgan, shares insights on the rising term premiums in government bond markets. He delves into how the changing fiscal landscape and tax legislation impact U.S. deficits and the dollar's strength. The discussion also touches on increasing tariff risks and their potential harm to the Eurozone's growth. Barry highlights the surprising resilience of the euro-dollar exchange rate amid market fluctuations, offering a fascinating look at the interplay between fiscal policy and currency stability.
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Global Rising Term Premia Explained
- Term premia are rising globally, driven by supply-demand imbalances in government bonds, especially long-end yields.
- This normalization of term premium reflects concerns about fiscal outlook and changing investor demand patterns worldwide.
Financial Stability and Market Liquidity
- US Treasury market liquidity remains stable despite sharp yield moves, minimizing financial stability risks.
- Japan shows higher financial stability concerns with supply-demand imbalances potentially prompting policy responses.
US Fiscal Outlook and Trust Risks
- The recent US House bill aligns with expected fiscal deficits and hasn't drastically changed treasury market outlook.
- Unlike the UK's 2022 trust crisis, the US has broader debt ownership and no leverage issues, reducing risk of a similar trust moment.