Investors brave US Treasury rout to lock in highest yields in decades

{"text":[[{"start":8.982,"text":"Big investors are snapping up US Treasuries, seeking to lock in the highest yields in decades as they bet borrowing costs can only climb so much further before a months-long sell-off abates."}],[{"start":20.164,"text":"Investors have injected almost $14bn into US government bond funds since the start of October, after net inflows in the third quarter reached a record $59.3bn, according to FT calculations based on EPFR data."}],[{"start":36.224,"text":"Although the flows represent just a small sliver of the $32tn Treasury market, fund managers said the 1.06 percentage point surge this year in 10-year Treasury yields to 5.24 per cent was making bonds look more attractive."}],[{"start":52.257,"text":"“That is a high level, which naturally attracts new interest,” said Vincent Mortier, chief investment officer at Amundi, who noted that the €2.6tn asset manager’s teams were now “adding exposure progressively” to Treasuries for dollar-denominated portfolios."}],[{"start":69.68,"text":"Investors’ warming views towards Treasuries come after a powerful rout in recent months triggered by the rise in energy costs caused by President Donald Trump’s Iran war, big issuance of debt by AI companies and expectations that US economic growth will be vigorous in coming years."}],[{"start":85.358,"text":"While many fund managers are reluctant to call an end to the selling, they are also looking for opportunities to secure juicy fixed returns for years to come."}],[{"start":93.94,"text":"Higher yields have driven investors to recent Treasury auctions in droves."}],[{"start":98.896,"text":"Demand was strong for the $39bn of 10-year notes on offer last Wednesday, sold just hours after yields reached a 24-year peak of 5.36 per cent, with primary dealers — the big banks responsible for absorbing any of the supply not bought up by investors — recording the lowest participation rate since 2003. The three- and 30-year auctions last week were also robust."}],[{"start":122.296,"text":"The appeal of 10-year Treasuries was also being bolstered by market-based expectations that inflation will only average around 2.35 per cent for the next decade, providing a “real” return of almost 3 per cent, Mortier said."}],[{"start":null,"text":"

"}],[{"start":134.92,"text":"Dan Ivascyn, chief investment officer at $2.3tn-in-assets bond giant Pimco, said that while Treasuries could continue sliding, pushing yields higher, they looked attractive compared with stocks trading near record highs. Corporate bonds also offered scant additional compensation for the risks investors were taking compared with ultra-low-risk US government debt."}],[{"start":156.44,"text":"“When you look at just how stretched equity valuations, how tight credit spreads are, we are just finding these rates much more attractive,” Ivascyn said."}],[{"start":165.684,"text":"Greg Peters, co-chief investment officer at PGIM Credit, noted that “a US 10-year [yield] above 5 per cent is a good medium-to-longer-term hold . . . It’s a pretty good investment”."}],[{"start":178,"text":"Mortier added that the investment group believed US yields were more likely to fall from here than to rise on expectations the recent burst higher in inflation would ease in the “medium term”."}],[{"start":187.154,"text":"Many investors remained concerned about purchasing bonds with longer maturities, which are more vulnerable to risks that the Fed will kick off a cycle of interest rate rises, following last month’s increase, to quell inflation."}],[{"start":199.016,"text":"“I’m not sure I would go out to 30-year Treasuries,” said Peters."}],[{"start":202.76,"text":"Similarly, Vishal Khanduja, head of broad markets fixed income and portfolio manager at Morgan Stanley Investment Management, flagged maturities up to 10 years as “attractive”, while “our conviction level for 20 and 30 years is lower”."}],[{"start":217.6,"text":"“We do believe — and that’s how our portfolios are positioned as well — that these yield levels . . . should be compelling enough for investors to either move out of cash, or move out of some floating-rate securities, or portfolios that they were allocating to into fixed rate and lock in some of these [yields].”"}],[{"start":233.64,"text":"But “the more you go out the curve, the more you have supply and demand technicals interacting quite violently,” he added, pointing to Treasury secretary Scott Bessent’s decision to increase the scale of buybacks of US government debt."}],[{"start":246.08,"text":"“It becomes very difficult to have a very clear valuation argument when you have non-economic players getting in, distorting some of the demand-supply technicals in that part of the market,” said Khanduja."}],[{"start":257.653,"text":"Looking beyond the US, Peters also raised the possibility of tensions in the Eurozone accelerating inflows into Treasuries. France’s sovereign debt has sold off sharply ahead of the country’s closely watched election next spring."}],[{"start":271.408,"text":"“I could definitely see a case where you have an issue in France, yields across the Eurozone link up even more than they are, and you’ll see money flowing into the US Treasury market,” he said."}],[{"start":281.497,"text":"While investors acknowledged the possibility of catching a falling knife — locking in Treasury yields now, only to see them jump higher — they argued that they were being paid for this risk."}],[{"start":292.7,"text":"“Mathematically, the income cushion is starting to become [so much] more compelling that it’s easier to hold on to these levels, rather than to wait for the ultimate top or bottom of yields to get into fixed-income securities,” said Khanduja."}],[{"start":307.56,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1791873215_6527.mp3"}