Treasury Bulls And Bears
The uncertain global outlook is also becoming evident in the Treasury market.
JPMorgan Asset Management is among the bears, saying the “proper place” for U.S. 10-year note yields to settle is around 2% following the recent bond-market volatility. This is likely to take place after some consolidation in the area of 1.5% to 1.75% around quarter-end, according to Bob Michele, chief investment officer at the money manager in New York.
HSBC Holdings Plc has a different take. Treasury 10-year yields will fall to 1% by year-end as an economic recovery based on stimulus won’t be enough to set off a lasting return of price pressures, London-based head of fixed income research Steven Major said last week. A proper inflationary shock would need pent-up consumer demand to boost economic output for “many years to come,” he said.
The benchmark 10-year yield rose to a 14-month high of 1.77% on Tuesday before dipping back.
Dollar Dispute
No less of a divergence can be seen over the burgeoning rebound in the dollar.
The currency’s uptick won’t last as it’s just a “countertrend rally within a broader bear market,” Morgan Stanley Wealth Management strategists led by Lisa Shalett in New York wrote in a research note Monday. “The reasons for a bear market remain: surging fiscal and trade deficits, growing government debt issuance, rising probabilities of anti-dollar regulatory and tax policies, ultra-dovish accommodation by the Fed, and increasing competition for foreign currency reserves.”
American Century Investments is bullish on the greenback, citing rising Treasury yields and a superior economic-growth outlook.
“What matters is the growth differentials—and the growth differentials this year are in favor of the U.S.,” said Abdelak Adjriou, a portfolio manager at the money manager in London. He turned bullish on the dollar earlier this year when 10-year yields climbed above 1%, he said.
‘Massive Run’
The simple fact that risk assets have had a major rally is another reason for doubts to set in.
“Any time you’ve had this massive run in risk assets—crude, copper, Russell 2000, currency trades—it becomes harder because positioning gets one-sided,” said Michael Purves, chief executive officer at Tallbacken Capital Advisors LLC in New York. “In the beginning it’s just easier—the risk/return is better. Once they become more obvious trades, they become not-as-good trades.”
—With assistance from Stephen Spratt and Liz Capo McCormick.
This article was provided by Bloomberg News.