To Memani, “The front end of the curve is really the interesting part. The long end of the market in Treasuries is going to remain boring for the foreseeable future.”
While the day-to-day movements may be small, the implications are big. It was only about a year ago that Bill Gross declared, “Bond bear market confirmed.” It was even more recently that Franklin Templeton’s Michael Hasenstab saw 10-year yields reaching 4 percent, while JPMorgan Chase & Co.’s Jamie Dimon warned that 5 percent was more likely than people thought. If it’s back to lower-for-longer, does that mean a renewed push into the highest-yielding corporate debt? Rightly or wrongly, that seems to be the playbook so far.
Surely, something will come along to shake the yield curve out of its slumber. Maybe this week’s data will show January’s inflation was higher than forecast, sparking a sell-off in long bonds. Maybe there will be a breakthrough in trade talks between the U.S. and China, causing investors to shed Treasuries and buy riskier assets. Maybe the federal government will shut down yet again, which could drive some haven flows. Or perhaps like in 2006 and 2007, this environment will last for about a year. Indeed, the futures market starts to price in a rate cut in mid-2020.
Gone are the days of the yield curve relentlessly flattening toward inversion. For now, the most exciting thing is the unknown path of the world’s biggest bond market. It can only stay in place for so long.
This article provided by Bloomberg News.