The US 30-year yields reached daily highs, with a notable decline prior to a key announcement at 13:50. In the following hour, yields started to increase again.
The Bank of England cancelled a 30-year auction today, reflecting ongoing concerns about liquidity and underlying market issues.
Budget Proposals And Fixed Income Markets
There are indications of a push for a budget featuring larger deficits from Congressional leadership, though resistance exists. However, data shows a lack of substantial spending cuts at present.
What we’ve seen so far suggests a growing tension in fixed income markets, particularly at the long end of the curve. When the 30-year yields hit their intraday peaks only to retreat shortly ahead of a time-specific release, there’s often a signal buried beneath the surface. That a recovery in those rates followed within the hour points not to a reversal of sentiment, but perhaps to waning short-term positioning ahead of a known event. The timing was not random. This type of movement, especially when clustered around the long bond, typically reflects anticipatory trading by large desks rather than retail impulses.
The Bank of England’s decision to pull the 30-year issuance today is not simply a procedural choice. These cancellations happen rarely and, when they do, it’s likely that bids were either too thin or not within tolerance on pricing. When central banks step back from a scheduled gilt auction—particularly one issued at the far end—it should raise questions about the prevailing demand environment, especially among LDI funds and other long-duration holders. These players, usually rock-steady bidders, may be reassessing risk in the face of market strain.
Elsewhere, political rumblings from the United States are becoming less about noise and more about numbers. According to the budget trajectory sketched out recently, broader deficits are not just on the table—they appear baked in. The absence of meaningful expenditure restraint, despite visible calls for fiscal brakes, points to a sovereign stance anchored more in postponement than paring. We aren’t seeing the kind of balance-sheet contraction that might otherwise soothe longer-term buyers of Treasury paper. Instead, signals are being picked up from the data—primary issuance levels, rollover calendars, and the allocation behaviour of the primary dealers—that imply more duration could be coming at a time when fewer participants are ready to absorb it comfortably.
Strategic Adjustments And Market Observations
Given the above, the approach from our side has been to reassess the asymmetric risks developing in long-dated derivatives. Implied volatility in the back end is responding accordingly, but not all participants are shifting in tandem. The dislocation between option skew and outright rate levels suggests that some positioning is misaligned. There continues to be a discrepancy between realised and implied moves in sovereign rate futures, particularly those tied to tenors beyond 15 years.
If we’re watching cross-market behaviours—specifically in sterling versus dollar duration—these shifts are not consistent. The continued drift in the sterling curve against a backdrop of diminished supply highlights the fragility of duration sponsorship here compared to what we’re observing in the US. It shapes both our glide path and the need to stay nimble in cross-currency rate structures.
Were we looking at outright receivers earlier, we’ve moved instead to conditional structures that allow for flexibility should the yield highs get revisited. The low-end skew has become expensive, but mid-delta structures are holding. Structured spreads that preserve convexity while limiting upfront cost have begun to look more appropriate, especially against the changing metrics of forward rate agreements.
This environment calls for careful management of exposure to the long bond. While outright directional views may still have merit, the volatility smile is painting a different story—one where risks to upward repricing remain underpriced in tails. We’ve adjusted accordingly, rotating from static positions into staggered structures that prioritise timing and respond better to reprice phases during thinner liquidity sessions.
With repo markets also reflecting pressure in longer durations and only tepid response from hedging flows, the coming auctions and data releases will test how stable these upper yield limits really are. These are not theoretical exercises anymore—they feed directly into how we treat gamma on longer expiries. The moments around key releases have stretched and extended, becoming focal not just for volume but for volatility term structure as well. It’s in those one-hour windows that the real intent of the marginal participants is most exposed.
