The government bond sell-off over the past three months raises uncomfortable questions around the risks of financial instability and the outlook for fiscal policy. This note takes stock of what has driven the rise in long-term sovereign bond yields and assesses the key near-term risks around the Treasury market. On balance, our view remains that Treasury yields will fall back as the US economy cools and the FOMC eventually shifts towards easing, even if term premia are likely to remain higher than in the recent past.
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