DoubleLine Says Shutdown Adds Fuel to Popular Treasuries Trade

by Liz Capo McCormick of Bloomberg News, 10/3/25

DoubleLine Capital says the popular strategy of betting on a steeper Treasury yield curve has plenty of room to run with the political gridlock in Washington only lending support to the trend.

The combination of Federal Reserve interest-rate cuts into 2026, sticky inflation and ballooning government borrowing will keep pushing the extra premium investors demand to hold long-term Treasuries higher in the coming quarters, according to Bill Campbell, global sovereign debt portfolio manager at the firm.

That’s going to happen whether Treasury yields overall are falling or rising, he said in a report.

“The shutdown will raise additional uncertainties and scrutiny of US data, the fiscal deficit and outlook for US policy, all of which are likely to keep term premium elevated for the foreseeable future,” he said.

The US government has been shut down since Oct. 1, with thousands of federal workers furloughed and key economic data — including the monthly jobs report that had been slated for Friday — delayed. President Donald Trump is weighing slashing “thousands” of federal jobs during the government shuttering.

The so-called curve steepener – a bet that long-term bonds would underperform shorter maturities — has been one of the most popular trades for bond investors this year. But the trade lost steam since early September, when the spread hit its widest in nearly four years, and the gap between 2- and 30-year yields has retreated to about 113 basis points.

“Even in a downside economic shock, I still think the curve will steepen,” Campbell said in an interview on Thursday. “We have increasing fiscal deficits, rising uncertainty about inflation, rising questions about US policy — anywhere from Fed independence to what the tariff and trade outlook for the United States is going to look like.”

Campbell predicts the curve has room to widen another 50 basis points to 75 basis points — or more. He pointed to the fact that popular gauges of the term premium in long-term Treasuries remain low in historic terms as another reason why he sees scope for more curve steepening.

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DoubleLine expects the Fed, which reduced interest rates in September for the first time this year, will cut again this month and possibly also in December given the growing risks around the labor market.

Interest-rate swaps tied to the dates of upcoming policy meetings are pricing in about 45 basis points of total Fed rate reductions this year.

Investor appetite for shorter debt grew after the Fed started its rate-reduction cycle in September 2024. That helped ignite the steepening that historically happens when the central bank is easing.

With concern mounting globally about excessive government debt loads, broader wariness about longer-term government debt has only added to the trade’s momentum.

“It’s not just the US phenomenon that we’re seeing pressure on the back end of interest rate curves — with investors really starting to question that ownership,” Campbell said.

Deficits and debt burdens are problematic across developed markets, while attempts to fix them “are facing significant headwinds, both political but also socially,” he said.

What’s more, Trump’s persistent pressure on the central bank to lower rates has raised concerns over Fed credibility and its ability to tackle price growth.

“If the Fed’s independence and credibility are questioned, that ultimately means the anchor on inflation is loosened,” Campbell said. “That demands an increased risk premium if you’re going to be lending for an extended period of time.”

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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

DoubleLine Says Shutdown Adds Fuel to Popular Treasuries Trade

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