Dual Tier Capital: Large-scale borrowing and weak demand will continue to put pressure on long-term US debt

The Zhitong Finance App learned that Jeff Sherman, Deputy Chief Investment Officer of Dual Tier Capital, said that he is still bearish on long-term US Treasury bonds and believes that large-scale government borrowing and weak demand will continue to put pressure on the US bond market.

Although US bonds rose on Thursday due to market concerns about artificial intelligence (AI) transactions and the return of safe-haven demand due to turbulence in the French market, Sherman said that the rebound from “oversold” levels did not change the fundamental pressure faced by long-term bonds. He said, “In most portfolios, we still have a large underbalance of US debt, and some portfolios are even shorting the long end of the yield curve.” He added that rising bond yields in markets such as Japan have intensified global capital competition, thereby reducing overseas investors' demand for US Treasury bonds.

Sherman also criticized US Treasury Secretary Bessent's attempt to lower US bond yields. He said, “(Bezent) he used these very aggressive words, such as 'I am a bookmaker and I have information you don't know'. The market didn't respond well to this.” “If you want investors to buy, you should give them more confidence and don't try to humiliate us.”

In terms of the credit market, Sherman said that although he is still underrated in the tech industry, he has begun “small exploratory purchases” of some debt after the recent market sell-off. Meta Platforms' (META.US) credit risk rose to an all-time high on Thursday as plans to increase capital spending further fueled market concerns about AI-related borrowing. AI cloud computing provider Coreweave (CRWV.US) bonds fell sharply last week due to growing market concerns about its reliance on debt financing for expansion.

Sherman said, “We are starting small exploratory purchases among hyperscalers (hyperscalers) and new cloud service providers (neoclouds).” He said, “When you combine all the factors — 12%, 13%, 15% yield — and you think that yield will protect you from bad results, then as a credit investor, this is exactly what you should do.”