Rising US Treasury Produces ‘Savior’ for Income-Hungry Investors

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Just a few weeks ago, bond fund managers were writing off government debt for offering meager returns and advising income-hungry investors to look elsewhere. However, the rapid and surprising increase in US long-term government bond yields in January after the Georgia Senate runoff elections put Democrats in control of Congress has led to Some money managers reevaluate the value of a traditional pillar of investors’ portfolios, especially among those. concerned about excessive foam at risky stock prices.

U.S. Treasury markets came under pressure earlier in the year after the reality of a Democratic-controlled Congress reinforced expectations for increased fiscal stimulus from the incoming administration of President-elect Joe Biden and in turn , generated fears of inflation. Even as investors became more comfortable with the unprecedented support for the global economy and markets offered by the Federal Reserve and other central banks and governments last year, some bond fund managers were beginning to worry about market valuations. stretched on corporate debt “given increasingly scarce returns are being offered in the ‘high yield’ sectors of the market,” said Gary Kirk, portfolio manager at TwentyFour Asset Management. As a result, investors were reaching a “high of inflection “in which” the rapid rise in the yield curve is beginning to look more like a savior than a headwind, “Kirk said. He noted that the spread between the additional return obtained by holding riskier corporate bonds over Treasuries had fallen to about the tightest since the start of the coronavirus pandemic last March. A basket of va US corporate debt lords below investment grade would now offer a 3.85 percentage point spread over government bonds, down from March, when spreads shot north of 10 percentage points, reaching the threshold at the that such values ​​would be labeled “distressed”. See: Wall Street Calls for a 60/40 Balanced Portfolio Turnaround Despite Strong Yields This Year. In fact, some bond buyers are already returning to the US Treasury market. Investors showed strong demand for an auction of $ 38 billion 10-year notes and $ 24 billion 30-year bonds this week. After the sales, the yield on the 10-year Treasury note TMUBMUSD10Y, 1.092% was at 1.09%, around 10 basis points from its most recent high of 1.18% on Monday. Meanwhile, the yield on the TMUBMUSD30Y 30-year bond, 1.820% stood at 1.82%. “It presents a good buying opportunity. But I’m not ready to put all my tokens, “said Rob Daly, head of fixed income at Glenmede Investment Management, in an interview. When the 10-year yield stood at around 0.60% last year, investors had to weigh the limited potential earnings of bonds front to the bigger losses they face from a disorderly sell-off. This imbalance made holding long-term Treasuries unattractive, he said. The recent rate hike has helped “create a better balancing act,” Daly said.