Displaying items by tag: Treasuries

(New York)

They had been paused for a couple of months, but in the last week, things started to change. Treasury yields once again broke above the 3% barrier last Wednesday. The number is a psychologically important and has proved a stalwart level for the yield to breakthrough. It did so earlier this year, before quickly falling back into the 2.8% range. Yields seemed to be pushed higher by a sharp rise in Japanese bonds yields following action by the BOJ.

FINSUM: Treasury yields are hard to handle right now. On the one hand, the economy looks fantastic, which should send them higher, but at the same time the Fed looks hawkish and the risk of recession seems to be rising, which would keep things in check.

(Tokyo)

Bond yields had been rising quickly in the US. The rise seemed to come out of nowhere for American investors, but most analysts said the quick jump in ten-year yields was due to a possible policy change by the BOJ to a less accommodative stance. However, the BOJ announced today that it would make only very minor changes and would remain highly loose in its monetary approach. The bank said it would not join other global central bank’s in tightening policy, and would leave rates ultra low for an extended period.

FINSUM: This is good news for bond investors, as Japanese tightening was interpreted as a major threat. This should help keep US yields looking attractive versus global yields, which will in turn keep them lower.

(New York)

US Treasury bonds got walloped yesterday. Yields on the ten-year fell over 10 basis points following weeks of relative calm. The big move happened in the early afternoon yesterday, and sent ETFs sharply lower. The jump in yields was not contained to the 10-year either, as 20-years and 2-years rose as well. The big question is why the sharp move occurred. Analysts are saying it was actually overseas influences that drove the losses. In particular, the Bank of Japan announced a policy change that would send rates higher, which spilled over to the US. Further, some better news on the trade war front might have sent some money out of Treasuries after a flight to quality in previous weeks.

FINSUM: This is a really sharp move for it to have been from overseas alone, as these kind of big jumps usually move in reverse. It is hard to draw any conclusions, but it may indicate there are bigger losses to come.

(New York)

If you have been following the situation closely, you will have noticed that the Fed is pretty uniformly dismissing the risks of our almost-inverted yield curve. The central bank thinks that central bank bond buying has held long-term yields to artificially low levels, and accordingly, they think the only 30 bp spread between two- and ten-year Treasuries is of no concern. The problem is that this is almost the exact same logic the Fed used when the yield curve inverted in 2006. Then they said it was a global savings glut keeping long-term yields pinned. Soon after, the US went in to recession and the Crisis erupted.

FINSUM: A big part of the problem here is not just that higher rates could lead to a recession, but that low long-term yields drive investors into riskier investments (just as they did pre-Crisis), so the flat yield curve is actually very worrying. The Fed is sleeping walking into a bear trap.

(New York)

The rise in yields across the world has seemed to stall over the last couple of months. Ten-year Treasuries are back under 2.9%, and while the yield curve is flattening, the risk of big losses from rising long-term yields seems to be mitigated. Not so fast. The Wall Street Journal is reporting that many of the world’s central banks are now aligning themselves with the Fed and are preparing to begin lifting rates. The pattern is emerging across both the developed and emerging markets (e.g. the Bank of England and the Reserve Bank of India).

FINSUM: We think this could be a risk for US investors. The main reason why being that one of the things that has kept long-term yields low is demand from overseas investors for our relatively higher-yielding bonds. If that changes, there won’t be such a lid on Treasuries.