Legal & General (L&G) is hedging its government bond purchases using bond futures to protect against a renewed selloff in global debt markets, according to Chris Jeffery, head of macro strategy. The £1.2 trillion firm, previously a buyer during turmoil, now shorting futures to cushion portfolios as yields rise. Factors eroding confidence include AI-related borrowing by hyperscalers, high government debt, and potential rate hikes.
Bond turmoil began after a Treasury selloff in late August, pushing US yields to multi-decade highs and UK 10-year yields to 2007 levels. Japanese rates also hit record peaks. Jeffery said the US is the main concern, with a robust economy and deficits pressuring bonds, particularly due to a sharp rise in the term premium — over 40 basis points recently.
He warned of a building risk premium in US debt and reduced appeal of bonds as a risk buffer, as they now move with equities. Hedges will likely persist through the Nov. 3 midterm election, awaiting fiscal clarity or economic evidence of yield impact.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing