Supply and demand in US bond markets
BofA notes that strong supply in credit has been well absorbed, aided by reduced Treasury risk delivery to the private sector, robust inflows, and growing investor appetite to extend along the UST curve.
What the desk is arguing
BofA Global Research highlights that credit markets have absorbed strong supply effectively, supported by a significant reduction in risk delivery from the US Treasury to the private sector. Inflows remain robust due to attractive yields and recently lower rate volatility. Additionally, there is a growing appetite among domestic investors to extend duration along the UST curve.
Where it sits in our coverage
Our internal coverage does not include specific targets or spread data for this market view, as the commentary focuses on supply-demand dynamics rather than rate forecasts. We categorize this as a neutral-to-bullish stance on credit and duration, aligning with a constructive view on fixed income.
How other firms see it
No other firm commentary is available for this topic.
Key takeaways
- 01Credit supply has been well absorbed, helped by reduced Treasury risk delivery and robust inflows.
- 02Investor appetite is growing for extending along the UST curve, particularly among domestic investors.
- 03Attractive yields and lower rate volatility are supporting inflows into bond markets.
Market implications
Continued strong demand for credit and duration could support tighter credit spreads and lower long-end yields. This may benefit long-duration bonds and credit-sensitive assets.
Risks to this view
A resurgence in rate volatility or a shift in Treasury issuance could disrupt the absorption of supply. Reduced risk delivery from Treasury may not persist, potentially tightening financial conditions.
Please join Ralf Preusser in conversation with Yuri Seliger and Meghan Swiber to discuss supple and demand in US bond markets. Strong supply in credit has been well absorbed, helped by a significant reduction in risk delivery to the private sector by US Treasury. Inflows are robust, supported by attractive yields and until recently lower rate vol.
We can also observe growing appetite to extend along the UST curve, in particular among domestic investors. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC.
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Sources & References
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