Bond market shows there’s already been peak growth: Portfolio manager
Villere and Company portfolio manager Sandy Villere on the state of the economy impacting how to best allocate capital.
The U.S. Treasury market’s rally is nearing an end, and the looming selloff could drag the stock market down with it, strategists warn.
Strong demand for Treasurys in recent weeks has pushed the benchmark 10-year yield below 1.20% after peaking at 1.8% in March. The decline came amid a drop in U.S. Treasury issuance that left investors fighting over limited supply.
U.S. Treasury yields fall as bond prices rise.
"US government bond technicals have been overpowering everything over the last quarter," said Deutsche Bank strategist Jim Reid in a recent note to clients.
FED TAPER COULD THROW STOCK MARKET FOR A LOOP
"There are signs these will ease over the coming weeks," he added. "So much so that if yields are still ultra-low by the end of September, there will be real evidence of something more structural keeping yields as low as they are."
Citigroup strategists, led by Robert Buckland, say the absence of a widening in credit spreads indicates all is well in the global economy.
A coming rebound in issuance, ongoing economic recovery and likely tapering of the Fed’s asset purchase program will "push the 10-year bond yields back towards 2%," the strategists wrote. Federal Reserve Chairman Jerome Powell said last month that the central bank was still "a ways off" from tapering its asset purchases and hiking interest rates.
The impact of rising yields on the stock market depends on what happens to real yields, or those adjusted for inflation, according to the Citigroup strategists.
They forecast the 80-basis-point rise in the 10-year yield, from 1.2% to 2%, will be accompanied by a 70-bp increase in real yields.