Rates Spark: Bearish Headwinds

2025-05-20 04:30:00 ET

Summary

• The Moody’s move is more a reminder on the de-rating mood on Treasuries. Not directly impactful, but something that will linger as an issue in the coming months. We remain bearish on Treasuries.
• In Europe, Bunds evaded the latest headwinds, and we sense that ECB officials are paring back their dovishness.
• The Dutch parliament will vote on a controversial pension reform amendment.

By Padhraic Garvey, CFA , Benjamin Schroeder , Michiel Tukker

Moody's acts as a reminder of risks not fully priced into Treasuries

We remain bearish on Treasuries. The Moody’s move is more a reminder on the de-rating mood on Treasuries. Not directly impactful, but something that will linger as an issue in the coming months. On the tax bill, if it does get passed, it will be bearish for Treasuries, as in its current guise it has minimal fiscal deficit reducing capacity. The only silver lining is the extension of existing cuts - while optically the most expensive aspect of the bill, it in fact won’t add directly to Treasury issuance (as it's already catered for in current issuance patterns). As it is, some 23% of issuance is financed through bills, which is well above the preferred level of 15%. So far, Treasury Secretary Bessent has decided not to push some of this out into coupon issuance, which helps to contain pressure on long dates....

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