Why The 30-Year Treasury Lost Its Biggest Buyers | David Busch on Why High Yields Are Attractive Right Now

The 30-year Treasury yield was about 5.29% during the discussion, after crossing 5.3% in August; the 10-year was roughly 4.7% to 4.8%. David Busch said high yields reflect heavy Treasury issuance against a roughly $40 trillion debt stock, persistent inflation pressure from energy costs and tariffs, and competition from companies issuing investment-grade debt to finance AI infrastructure. Higher yields make fixed income more appealing relative to equities, but they have not by themselves brought enough buyers back to long-dated Treasuries.

Insurers, public pension plans and sovereign wealth funds are natural buyers of long-maturity government debt, but Busch said insurers have been reducing duration and convexity exposure while taking on more liquidity and credit risk to pursue higher returns. Estimates he cited put private credit at roughly 7% to 12%–15% of insurers’ assets, weakening their role as buyers of long Treasuries. Private credit can offer higher, floating rates and less duration exposure, but lending against assets such as software intellectual property or litigation claims brings credit and collateral risks that Treasuries do not.

Busch favors three-to-five-year Treasuries, with maturities out to seven years also reasonable, rather than 20-to-30-year bonds. He cited the Bloomberg U.S. Aggregate Bond Index’s roughly six-year duration and said an upward-sloping curve can reward holding a higher-coupon five-year Treasury as it rolls down toward three years. Investors could then sell and reinvest if the curve remains stable and upward-sloping; the strategy depends on that condition and does not remove interest-rate risk.

He expects rates to remain elevated because inflation is sticky, the labor market is resilient and there is no clear catalyst for Federal Reserve cuts. A Middle East ceasefire that reopened shipping lanes could lower energy prices, and removing tariffs would also be deflationary, but those outcomes are uncertain. Higher risk-free rates can pressure equity valuations and borrowing costs can squeeze company margins, particularly at leveraged businesses. Busch sees no single yield threshold that would unsettle him: the key is whether companies can sustain borrowing costs and margins through earnings.

The Treasury has expanded buybacks to support liquidity in older, longer-dated bonds, initially raising the announced amount from $2 billion to $4 billion and buying back $6 billion on September 9. Busch said that is small against roughly $40 trillion of debt and daily trading of about $1.2 trillion or more; the signal of concern about liquidity and demand may matter more than the purchase size. Longer-dated yields rose on the day of the $6 billion buyback. Funding buybacks with shorter-dated bills can shift the maturity mix, but Busch said the effect on total debt is incremental and interest costs could stay flat or rise slightly, depending on yields.

Treasuries could still serve as a diversifier in a severe market shock: as credit spreads widen and credit-bearing assets fall, investors may favor government bonds over investment-grade or high-yield corporate debt and private credit. Busch’s firm has largely avoided private credit because of credit and liquidity risks, warning against products marketed as equity-like returns with bond-type risk. Some interval funds cap quarterly redemptions at about 5% of net asset value, so investors may receive only a pro-rata share when requests exceed the limit. He recommends examining sectors, holdings and, where accessible, loan-level records of delinquencies, defaults and collateral.