Steven Major, global head of fixed income research at HSBC, examines the potential of the UK as an alternative safe haven to the U.S. and offers his outlook for U.S. treasuries.

HSBC's global head of fixed income research, Steven Major, recently shared insights into the current dynamics of the bond market, focusing on the trust associated with U.S. Treasuries and the potential for the UK to emerge as an alternative safe haven. The U.S. Treasury market has historically been seen as a secure investment due to its status as a reserve currency, supported by an independent central bank. Major noted that if this trust were to be impacted, the UK might benefit, despite its relatively small market size.

Major also explored the narrative around foreign buyers' interest in U.S. Treasuries, addressing the perception of a foreign buyers' strike. He indicated that both U.S. and UK markets have seen a shift towards domestic investing over the past decade. The sell-off in April was attributed more to market volatility stemming from tariffs and forced deleveraging, rather than a reduction in foreign investor confidence.

Looking forward, Major forecasts U.S. 10-year treasury yields will remain within a 3 to 4 percent range, with a potential return to an easing path by the Federal Reserve. He emphasized that maintaining trust in the bond market is crucial for ensuring investor loyalty, and U.S. Treasuries appear to be gradually regaining this trust.



HSBC sees U.S. treasuries restoring some trust

Stephen Major global head of fixed income research at HSBC discussing the future of the bond market globally writing loyalty to the U.S. Treasury market was built through years of trust in the reserve currency and perceived safe haven status for bonds underpinned by an independent central bank. If this status were to be put at risk the UK could stand to benefit as an alternative safe haven. Pleased to say that Stephen joins us now. Steve great to see you. And I know you wrote this in your research as part of why the UK yields have a higher premium compared to their European counterparts. But that first part is that a serious discussion ongoing right now. A serious look for alternative havens beyond the Treasury market. Yeah well the stock response is there's no alternative Danny. But then if you take a bit of a look you could maybe buy a basket of alternative bonds. And you know the context is quite important here Danny because the the reflexive response to the idea that the UK yields are high sometimes goes back to Brexit because there was a Brexit premium. But that's nine years ago. That's been fading somewhat. It was about supply constraints. If you think a few years forward we could be transferring some of that risk over to the over to the U.S. because if the labor market's not going to be growing like it was the last four or five years something or some 15 million people came into the U.S. for example. So you had you had a supply boost in the U.S. through a period when the UK was recovering from supply constraints. The other thing is the UK has had a few fiscal episodes in recent years going back to 2022. And you could even say last year those fiscal episodes are reminders to the U.K. government to behave and therefore you have fiscal responsibility as well. And you have an independent central bank. So I think that given some of the things things that have been discussed in the last few weeks people will be thinking well perhaps there are some alternatives. Now the problem for the UK is it's so small as a market. But it's it's a good start anyway. Danny. It kind of gets to this narrative also of do foreign buyers of treasuries look more closely at their own domestic markets. Stephen I know you've been pushing out to some degree about this idea that there's a foreign buyer strike of U.S. treasuries. What does that narrative get wrong. What does it actually look like in terms of foreign flow into American treasuries. Yeah well both the U.S. and U.K. have a similar pattern in the rotation into domestic investing over the last 10 years. So again the context is important right. Something like 30 percent of the stock of U.S. treasuries are held outside the U.S. So if there's some eight trillion dollars or so half of it's in the official sector half it's in the private sector. Now I dare say there will be some private sector investors that don't like what's happening and may have sold. But if I have to order the reasons for the sell off at the beginning of April it was more the vol shock that came from the tariffs and the reciprocal tariffs and what that did to asset swap positions basis trade etc. And also the forced de leverage that was happening and liquidations in real money. That was the explanation for the jump in U.S. yields to point at overseas investors. I don't think that's correct. If that is the case does that mean some of the froth some of the jumping money has been taken out of the Treasury market and there's less concerns of fragility. Or are you still concerned that we could get episodes like we did in mid April. I think 10 year treasuries should should sit in a 3 to 4 percent range. They're currently above four. Prior to April the second they were heading below 4 percent. So I don't think it's unreasonable given the fact that the Fed wants to get back onto an easing path later this year that treasuries are in a 3 4 range and three and a half is our forecast for this year. I think you're right. Some of the some of the froth may have been taken out and we've had a very calm couple of weeks as you were just pointing out. Treasury yields are grinding lower and you know they are restoring some of that trust that I think is is being challenged. I mean the important thing here is that your trust is an antecedent of loyalty and you need loyalty in your bond market. So so that's why it's important that governments keep that trust in their bond markets.

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