Investors eye 4% Treasuries as bond market tests Fed’s resolve
The surge in US Treasury yields above the 4 percent threshold is drawing a mixed response from investors, despite the Federal Reserve’s recent rate cuts. Experts from Pictet, UBS Wealth Management, and Bank of America see an opportunity to lock in attractive yields amid market turbulence, but the bond market remains unconvinced about the Fed’s path forward.
Morningstar Top 5: US government bond funds
European investors this year found safety in short-term US debt and the dollar. This week’s Top 5 by Morningstar takes a look at the performance of US government bond funds in the year to date.
The fragile financing of the United States
The US national debt recently passed the 30,000 billion dollar mark. Since March 2020, the US national debt has increased by 7,000 billion dollars. All those “Treasuries” are ultimately part of one’s portfolio. Certainly now that some major buyers have dropped out this year, it remains to be seen whether enough buyers will remain.
Rising market rates ‘harbinger of misery’
The yield on US 10-year Treasury bonds topped 2.8 percent on Tuesday, the highest point since 2018. The 10-year yield thus technically breaks the downward trend line that dominated the government bond market for the last four decades. “This is a harbinger of misery.”
‘Blue Wave yield spike has run its course’
In the aftermath of the surprise Democrat win in the Georgia Senate run-offs earlier this month, 10-year Treasury yield surged above the 1%-mark. It seemed investors were anticipating a large fiscal stimulus by the incoming Biden administration. But Nick Maroutsos, head of global bonds at Janus Henderson Investors, does not believe rates will go up much further from here.
Foreign investors dump Treasuries
Several countries drastically reduced their exposure to US government bonds in March. Treasuries worth $256.6 billion were sold, according to data published by the US Treasury.
According to analysts, the outflow was mainly driven by the fact that a number of emerging countries needed the money to support their own currency. The most important sellers were Saudi Arabia, Brazil and India. Saudi Arabia sold the most with $25.3 billion, but still owns $159 billion worth of Treasuries.
‘There’s no alternative for Treasuries’
US government debt is rising rapidly and the economy has come to a virtual standstill because of the coronavirus. However, treasury yields have never been this low. Yet, real alternatives to treasuries as a safe haven investment have yet to emerge, according to Quentin Fitzsimmons.