Tipp says that’s made longer-term Treasuries more attractive. Based on a metric known as the “term premium,” 10- year Treasuries offer 0.5 percentage points more in yield than short-term debt. The last time that happened, the notes returned 3.6 percent in the next three months in the biggest quarterly advance since 2012.
Capital Flight
Global events are also putting a premium on safety and delaying the exodus from Treasuries that almost everyone on Wall Street predicted would be inevitable.
In Europe, the crisis in Greece escalated the nation missed a $1.7 billion payment to the International Monetary Fund and voters rejected further austerity measures demanded by creditors, heightening concern that a financial collapse may fracture the euro bloc and spark capital flight from the region.
Investors will start to focus on “what’s the next Greece,” Brandon Swensen, the co-head of U.S. fixed income at RBC Global Asset, which oversees $35 billion, said from Minneapolis. “Any event that catches the market off-guard, it’s very predictable that Treasuries are going to rally.”
The bursting of China’s stock bubble is also deepening worries about the health of emerging markets, after investors there lost more than $3 trillion in three weeks.
While America remains the bright spot, the potential knock- on effects of higher U.S. rates on the global economy have already prompted both the World Bank and the IMF to call on the Fed to delay any increases until 2016.
Haven Status
Traders are signaling the Fed will heed their advice. Based on Morgan Stanley’s analysis of futures trading, the first rate increase won’t occur until January. In March, the market was anticipating a September rate rise.
“Given all the uncertainty, this makes it harder for investors to feel confident” about the economy, said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s private wealth unit. “The safest place to be in these uncertain times is the safety of Treasuries.”