Raed Al-Momani, Head of Asset and Wealth Management at Capital Investments, said that the rise in US bond yields, especially long-term ones, is primarily due to an increase in the term premium, not to rising inflation expectations, noting that markets are now pricing in the risks of increased government spending and expanding debt issuance amid ongoing geopolitical tensions.

Al-Momani explained in an interview with Al Arabiya Business that developed countries' bond yields rose by about 10 basis points across various maturities compared to last week, noting that implied inflation expectations did not rise despite the increase in oil prices.

He added that war means increased government spending, and thus increased borrowing and bond issuance, which raises the risk premium demanded by investors, especially on long-term bonds, more than it reflects inflationary concerns.

Al-Momani commented on JPMorgan CEO Jamie Dimon's statements about the futility of buying long-term US bonds, saying that the company shares the same view under the current environment.

He explained that long-term bonds have become affected by several factors, including inflation, widening budget deficits, rising debt levels, in addition to increasing government bond issuance to finance spending, which pressures prices and raises yields.

He added that competition is no longer limited to governments, as major corporations with high credit ratings are also issuing large amounts of long-term bonds to finance their investment plans, which increases pressure on this part of the yield curve.

He pointed out that Capital Investments has been recommending during the past period to follow a 'ladder' strategy, by distributing investments across different maturities instead of focusing only on long-term bonds.

He explained that even an investor who intends to hold the bond until maturity will not suffer a capital loss if no default occurs, but may bear the opportunity cost if yields rise later.

Strong demand for Kuwaiti bonds

Commenting on Kuwait's upcoming issuance, Al-Momani said the indicative pricing came in higher than the current Kuwaiti bond yield curve by between 25 and 40 basis points, expecting the final pricing spread to fall to between 25 and 35 basis points depending on the maturity.

He added that the order book reached about $13.5 billion as of the time of the interview, reflecting strong demand for the issuance, and likely narrowing yield spreads at final pricing.

Indicators of inversion on Bahrain's yield curve

Al-Momani pointed to the emergence of inversion indicators on the Bahraini bond yield curve, explaining that yields on short-term bonds have become higher than some longer maturities, indicating the beginning of a yield curve inversion.

He added that the period between the 2029 and 2035 maturities is experiencing a flattening of the yield curve.

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