DoubleLine Capital: Large-Scale Borrowing and Weak Demand Will Continue to Put Pressure, Still Bearish on Long-Term U.S. Treasuries

According to Zhitong Finance APP, DoubleLine Capital Deputy Chief Investment Officer Jeff Sherman stated that he remains bearish on long-term U.S. Treasury bonds, believing that large-scale government borrowing and weak demand will continue to put pressure on the U.S. Treasury market.

Although U.S. Treasuries rose on Thursday due to market concerns over artificial intelligence (AI) trading and turbulence in the French market driving a return to safe-haven demand, Sherman said that the rebound from "oversold" levels does not change the fundamental pressures facing long-duration bonds. He stated, "We remain significantly underweight U.S. Treasuries in most portfolios, and some portfolios are even short at the long end of the yield curve." He added that rising bond yields in markets such as Japan have intensified global competition for capital, thereby reducing overseas investors' demand for U.S. Treasuries.

Sherman also criticized U.S. Treasury Secretary Janet Yellen's attempts to suppress Treasury yields. He said, "(Yellen) has used some very aggressive language, such as 'I'm the dealer, I hold information you don't know.' The market hasn't responded well to this. If you want investors to buy into it, you should give them more confidence, not try to shame us."

In the credit market, Sherman said that although he remains underweight in the technology sector, after the recent market sell-off, he has started small-scale, tentative purchases of certain debt. Meta Platforms (META.US) credit risk rose to a historic high on Thursday, as plans to increase capital expenditure further fueled market concerns over AI-related borrowing. Last week, bonds of AI cloud computing provider CoreWeave (CRWV.US) fell sharply due to growing concerns in the market about its reliance on debt financing for expansion.

Sherman stated, "We have begun small and tentative purchases among hyperscalers and neoclouds." He remarked, "When you put all the factors together—12%, 13%, 15% yields—and you think these yields can protect you from bad outcomes, then as a credit investor, that's exactly what you should be doing."