Treasury demand becomes more valuation-sensitive as term premiums near decade highs

The new marginal buyer of Treasuries is someone who actually looks at the price tag. Households and mutual funds now account for the bulk of net new Treasury absorption, with households alone taking down over half of recent net increases. These buyers, unlike the Fed or the People’s Bank of China, will demand more yield when conditions look risky and pull back when valuations don’t make sense. The term premium is back, and it’s not subtle The 10-year Treasury term premium now sits between 0.8% and 1.37%, depending on the model used. Either way, that’s the highest sustained level in nearly a decade. In practical terms, it means the market is telling Washington that borrowing long costs more now, not because of inflation expectations alone, but because investors simply aren’t sure what comes next and want to be compensated for that uncertainty. The US government is projected to issue roughly $2 trillion in net new Treasuries annually over the next decade. When the Fed was expanding its balance sheet, absorbing a big chunk of that supply was essentially automatic. Now, the private sector has to do the heavy lifting, and private investors are pickier customers. Volatility is the new no...