1. TS Lombard argues that the current market's general attribution of rising US Treasury yields to high US government debt and questionable fiscal sustainability is inconsistent with fundamentals.
2. The actual drivers of this round of yield increases are threefold: persistently high energy prices, unexpectedly resilient global economic growth, and central banks' tendency to maintain restrictive interest rates for a longer period. This is a typical combination of "strong economy and tight monetary policy," rather than a signal of deteriorating fiscal credit. A key piece of evidence is that if the market truly priced in a fiscal crisis, the spread between long and short-term interest rates should have widened significantly, but in reality, the spread between 10-year and 2-year yields has continued to narrow.
3. Historically, economies that have truly triggered fiscal crises have all suffered from a structural deficiency of "borrowing without issuing currency"—the root cause of the European debt crisis was the lack of a unified lender of last resort, and the UK's 1976 search for international aid stemmed from the dual constraints of external debt and exchange rate pegging. Even the 2022 UK government bond liquidity shock was quickly resolved after central bank intervention. 4. For economies with monetary sovereignty, government debt default is not a real risk; the real tail risk to be wary of is inflationary pressure. (TS Lombard report, September 28)
