Citi: U.S. Treasurys Need More Term Premium as Yield Curve Steepens Globally

Citi: U.S. Treasurys Need More Term Premium as Yield Curve Steepens Globally

The U.S. Treasury market likely requires additional term premium—extra yield compensation for holding long-dated bonds over short-dated ones—for stability to return, according to Citi’s global asset allocation outlook.

Even if the fiscal impact of the U.S. budget doesn’t reach the extremes of more bearish scenarios, Citi notes that the yield curve can remain steep. This suggests that investors are demanding higher returns for longer-term risk amid persistent macroeconomic uncertainty.

Citi remains underweight on U.S. Treasurys, anticipating that year-on-year inflation in the United States is likely to rise. However, the bank also acknowledges that the timing of a broader selloff in the U.S. bond market is difficult to predict.

Notably, the steepening of the yield curve isn’t exclusive to the U.S. market—this trend is increasingly global, reflecting shifting expectations on inflation, interest rates, and sovereign risk in multiple regions.