Global Wall of Money is a key to U.S. Treasury Snap Up

Photographer: Mark Wilson / Getty Images

Treasury market bears had better pay attention: There is a wall of global money to enter and buy, possibly limiting the upside yield.

The united Democratic government outlook has begun to anticipate inflation, taking the Treasury’s long-term yield back to a high seen in March 2020 – and approaching levels where many investors are between -nationals say they would want to buy it.

For money managers in Asia and Europe monitoring the world’s largest economy, there is a perception that yields may not be the highest, amid concerns about the consequences of high-risk viruses. and the slow distribution of vaccines. President Joe Biden is also likely to be A $ 1.9 trillion incentive proposal is going to address obstacles in a closely divided Congress that is also set to engage in impeachment proceedings.

The result is that investors in Europe, and especially in Japan – the largest overseas owner of American government debt – have put their sights on buying more if the 10-year into the 1.25% to 1.3% range and the 30-year to around the 1.92% -to-2% range. In each case that is only 10 basis points, even slightly less, above the most recent peaks seen before the surging reflation trade appeared to be losing momentum.

“The path of the virus creates downward risks for economic data,” said Mark Dowding, chief investment officer in London at BlueBay Asset Management, which has over $ 67 billion. “Over the next few months, the 10-year yield should be between about 1% and 1.25%,” and the company would be looking to buy if a product broke the headline, he said. , with 2% serving as a key point for 30-century bonds.

Demand from abroad has always been a key part of prognosticating in the Finance market, and this new desire has a far-reaching impact. For one thing, it is responsible for limiting the cost to U.S. taxpayers of financing the country’s debt, at about $ 21 trillion and counting. But it also means that investors in other asset classes may not be as scared of hoarding Treasury yields.

See here for more on how rising yields are forcing traders to discuss the risks for stocks.

The largest bond sellers have a mixed impact on product yields. HSBC this week They suggested buying finance on what they called a “sale”. Meanwhile, Goldman Sachs it raised the end-of-year target for 10-year yields to 1.5% from 1.3%, with the apparent “greater fiscal impulse” under the government’s unified Democratic control.

‘Extreme’ risks

But foreign buyers may not be waiting for rates to reach that high level, with cracks in the growth-rebound story emerging. This week saw the biggest jump in filed for jobless claims from March, and the an unexpected decline in retail sales.

“The risks to the outlook for the economy are huge,” said James Athey, London-based cash manager at Aberdeen Standard Investments, which has more than $ 560 billion. “There are risks on both sides, but I would argue that the majority are declining – towards less positive growth outcomes, less positive virus outcomes, fewer vaccine outcomes. If I get a 10-year return to 1.25% to 1.30%, I would be comfortable adding to my long-term careers. ”

Wall Street card viewers are also looking at that area as the next big hurdle for production, as the rate of about 1.27% represents the peak seen in the March market pandemonium.

There are already signs that the link market sales are attracting buyers. This week, investors stopped the Treasury sale of 10-year notes and 30-year bonds. Next week comes the auction of $ 24 billion in 20-year debt.

Japan decision

For the global bond market, many ride on Asian-based investor options. Japan had about $ 1.3 trillion in treasury as of October, the largest foreign pile. China next with about $ 1.1 trillion, the lowest level since 2017. On Tuesday, the government will release data for November. Markets are closed Monday for Martin Luther King Jr. Day.

See here for more on the recession in China.

So far, there are Japanese buyers spending their time. For this major investment segment, yields are not high enough to give them confidence that they have lost capital. That’s even as the yen has reached its strongest end recently and the cost of a cash hedge has fallen.

“There will be little outflow from Japan until Treasury yields stop rising,” said Takenobu Nakashima, chief rate strategist at Nomura Securities.

For Nakashima, there will be one strong signal if U.S. 10-year rates, adjusted for hedge costs, are consistently higher than the yield of 30-year Japanese government bonds – which is about 0.65%, up from about 0.25% in March. That has been true for about a week now.