Strategist Warns U.S. Fiscal Policy Could Trigger Sharp Repricing of Treasuries

SEB Strategist Cautions on Long-Term Treasury Yield Surge Amid Fiscal Uncertainty

According to TechFlow, Jussi Hiljanen, Chief Interest Rate Strategist at SEB Research, warned on May 23 that long-term U.S. Treasury yields may continue rising, with fiscal policy posing a key risk of market repricing.

Hiljanen pointed to a deteriorating investor outlook on U.S. macro policy credibility, unattractive foreign exchange hedging costs, and weak valuation signals—factors that are driving capital flows away from Treasuries and toward European sovereign bonds.

Key Drivers of Yield Pressure

Hiljanen outlined several structural and short-term forces contributing to the upside pressure on U.S. yields:

Declining investor confidence in U.S. fiscal and monetary policy coordination

High FX hedging costs reducing the appeal of Treasuries for foreign buyers

Better relative value in European debt markets

Large U.S. fiscal deficits, with debt issuance continuing to pressure bond supply-demand dynamics

“While we expect only a moderate rise in long-term yields under current conditions, a shift in fiscal expectations could lead to a more abrupt repricing of the U.S. Treasury curve,” Hiljanen stated.