Convenience yield is falling for Treasuries

Interest rates have been rising with what some may call the "Great Bond Sell-off" of 2026, yet there are other underlying problems that will have much longer-term implications for US debt markets. There has traditionally been a convenience yield associated with US Treasuries because it has been viewed as a safe asset. The safe asset problem is arising because the supply of Treasuries has been increasing relative to demand, thereby reducing the convenience yield. Additionally, other policies affect Treasuries as a safe asset. If the reserve currency is also perceived as less safe, global investors will be less inclined to hold US Treasuries.

The reserve currency status and safe asset status are not the same thing, yet they are closely connected. In the paper, "Tariff war shock and the convenience yield of US Treasuries - A hedging perspective", the authors document the erosion of the convenience yield for long bonds because of the rising stock-bond covariance. They find that the rise in long-bond yields is associated with a deterioration in the convenience yield, driven by the withdrawal of safe-asset investors worldwide and a shift toward shorter-term Treasuries, which still serve as a safe asset. 

The data surrounding last year's tariff wars show a shift in perceptions of safety. Policy choices matter and will impact US credibility and reputation. Markets will look for other safe havens such as gold or shorter-duration Treasuries relative to traditional safe assets.