The yield on 10-year US Treasuries is at the top end of its range, providing a good entry point for investors, according to Steven Major, global head of fixed-income research at HSBC Plc.
The US Treasury market selloff has been escalating, pushing the 10-year yield above 4.2% this week as investors pared expectations for Federal Reserve interest-rate cuts next year. That makes the asset class competitive relative to equities and credit, according to Major.
It’s also the highest level in this duration since October, when the Federal Reserve’s policy rate was a full 225 basis points lower. That means the market has absorbed a large amount of tightening from the last time the yield was at the same level.
“I think we’ll be nearer to three than five in a year’s time” on the 10-year yield, Major said in a Bloomberg Television interview Wednesday. “Going up the US curve to 10 year-plus is now looking more and more interesting because we’re at the top of the range and more fundamentally the real yield is covering the trend GDP.”
UST 10-Year Yield Highest Since October
The Treasuries selloff stalled on Tuesday as investors seized on the higher yields, after stronger-than-anticipated retail sales data for July reinforced the case for the Fed to raise interest rates further.
Major’s view dovetails with that of firms like JPMorgan Chase & Co. and Western Asset Management, which say this month’s jump in bond yields represents a buying opportunity given central banks are getting close to the end of their rate-hike cycles. Those come as investors like Ontario Teachers’ Pension Plan, one of Canada’s largest institutional investors, are making bigger bets on bonds and credit.
Major also said Treasuries remain a safe instrument and the decision by Fitch to downgrade the US’s credit ratings shouldn’t affect its fundamentals. However, the move might have helped fuel the rise in yields, he said.
--With assistance from David Ingles.
This article was provided by Bloomberg News.