10yr Treasury hits 1.30% and the bond market selloff hits PAUSE. Here’s what is next.

With equities at or near all time highs and Treasury yields climbing for a variety of reasons (economic data being impacted by fiscal stimulus along with misplaced HOPE of inflation), it is easy to consider Treasury bonds ‘dead money’.

Treasury yields are becoming more attractive on a global scale and at time of the month (and year) where asset allocators may have a vested interest in them.

First, as we approach month-end, 60/40 index funds who are out of balance (70/30 given equities OUTPERFORMANCE) are more incentivized than they have been over the past twelve months as Treasury yields are now offering MORE than 1.25% (approximately four times what they were offering on March 9th, 2020).

Also, consider Treasuries in a GLOBAL CONTEXT. To do so, consider THIS STORY from MarketWatch:

10-year Treasury yield struggles to push beyond 1.30% as bond-market selloff takes a pause

Last Updated: Feb. 18, 2021 at 3:40 p.m. ET

By Sunny Oh

…What did market participants say?

Is the market trying to flesh out a new range? That’s probably going to be the case until someone for some reason tries to stop the bleeding,” said Steve Feiss, managing director of fixed income at Etico Partners, in an interview.

Feiss also noted yields had risen to a point where Asian institutional investors were starting to take note of U.S. Treasury market’s relative attractions over European government bonds.

Here are 10-year Treasury yields when hedged for JPY based investors:

10yr Treasury hedged for JPY

(click HERE to enlarge visual)

But WAIT, there’s more.  This NEXT story from Bloomberg.com helps put US Treasuries in even more of a GLOBAL context.

Treasuries Now Rival Italian Bonds for Japan’s Yield Hunters

By Stephen Spratt

February 18, 2021

A rout in Treasuries this year has changed the equation for Japanese investors in global markets, with the U.S. bonds now offering them almost as much yield as riskier issuers such as Italy.

…After accounting for currency-hedging costs — which are hovering near the lowest in at least three years for both the euro and the dollar — Japanese buyers can pick up a yield of 0.9% on 10-year Treasuries. That’s a handful of basis points less than comparable Italian debt, with the difference between the two at the narrowest since 2015…

BTPs and USTs hedge for JPY

(click HERE to enlarge visual)

The point IS that while things may SEEM to be going in the right direction here in the USA (virus case counts down, economic data less bad, inflation may be brewing AND the new administration continues to enjoy its first 100 days ‘honeymoon’), we’re still the owner of the printing press of THE global reserve currency and things priced IN said reserve currency (like US Treasuries) offer both domestic as well as foreign investors portfolio ballast.

As always, before deploying YOUR assets in any strategies that are best suited for someone ELSES risk (and FX) adjusted returns, consult your Etico Partners financial expert for more…

Steven J. Feiss

Managing Director, Fixed Income

Etico Partners, LLC

1795 Rout 9 Clifton Park, NY 12065

Office: (732) 683-9222
Mobile: (914) 450-9668

feiss@bloomberg.net
sfeiss@eticony.com

Meet the Author

Financial markets veteran with more than three decades of experience working with high profile, domestic and international asset managers and trading desks, producing customized and actionable solutions for strategic alpha generation and risk mitigation. Author of a unique daily (6x per week) cross-asset macro market commentary (the BondBeat) to inform and assist INSTITUTIONAL FIXED INCOME investors and trading desks.