Barclays: High yields do not mean U.S. Treasuries are cheap, term premium determines risk

智通财经2026/10/08 07:21

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Barclays strategists Demi Hu and Anshul Pradhan stated in a report that, based on the valuation of U.S. Treasuries, higher yields do not necessarily mean Treasuries are cheap. The strategists noted that if most of the yield reflects market expectations for short-term interest rates, investors receive less additional compensation for holding duration assets compared to investing in shorter-term roll-over instruments. They said: “A higher term premium means higher compensation but also reflects greater uncertainty and duration risk.” They added that this distinction also influences risks at various points along the yield curve. The strategists indicated that if the recent monetary policy path is reassessed, the impacts should mainly be concentrated at the front and middle segments of the yield curve, i.e., in the medium-term range; while if the term premium or the assumption for the long-term neutral rate continues to rise, greater pressure will be exerted on the long end of the yield curve.

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Barclays strategists Demi Hu and Anshul Pradhan stated in a report that from the perspective of U.S. Treasury valuations, higher yields do not necessarily mean that Treasuries are cheap. The strategists noted that if most of the yield reflects the market's expectations for short-term interest rates, then investors receive less extra compensation for holding duration assets compared to rolling investments in shorter-term instruments. They said, “A higher term premium means higher compensation, but it also reflects greater uncertainty and duration risk.” They added that this distinction also affects the risks borne at different positions along the yield curve. The two strategists stated that if the recent monetary policy trajectory is reassessed, the main impact should be concentrated at the front end and midsection of the yield curve, that is, the medium-term segment; whereas if the term premium or the long-term neutral rate assumption continues to rise, it would place greater pressure on the longer end of the yield curve.

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(1) Market analyst Jeremy Boulton stated that as market volatility rises and exchange rate fluctuations widen, currency carry trades are becoming increasingly vulnerable. (2) Adverse exchange rate movements may be sufficient to offset gains brought by favorable interest rate differentials, or even cause greater losses. (3) Some of the most popular carry trade currencies have already experienced substantial adverse price moves: since the outlook for a Federal Reserve rate hike in September became clear, the Mexican peso has fallen by as much as 9%, the South African rand has declined by over 5%, and the Hungarian forint has dropped by more than 7%. (4) Japan has taken measures to support the yen, leading to a slight appreciation, while a sharp sell-off in French bonds has hurt market confidence, dragging down the euro and boosting the Swiss franc. (5) This has further intensified the losses faced by carry trades that rely on stable market conditions. If the stock market undergoes further corrections, carry trades may face a collapse. (6) As investors take profits before year-end and amid the uncertainty of the US elections in November, equities and other risk assets may come under additional pressure.

智通财经•2026/10/08 08:06