Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting Club
PRO
LivestreamMenuLonger-dated government debt has been hit particularly hard after a global bond sell-off drove yields to multi-decade highs on Tuesday. The 30-year Treasury yield is now hovering close to its highest level since 2007, while Japan’s 10-year bond yield reached its highest level in three decades. German 30-year bund yields hit their highest point since 2011 and rates on France’s 30-year bond reached their highest level since 2008. As the longer end of the yield curve looks increasingly capricious, short-term bonds may offer a solution to uncertainty later down the line, according to analysts at UBS. “The front end of the yield curve has stayed relatively anchored, and we do not think the rise in long-term yields invalidates the case for quality fixed income,” they wrote in a note published Wednesday. The analysts added that today’s higher yields offer a cushion against further rate increases before investors could experience a potential loss. UBS analysis indicates that the 2-year and 5-year Treasury notes would need to rise by around 100 to 230 basis points from current levels for falling bond prices to cancel out income returns. “With the long end of the curve more exposed to fiscal concerns, inflation uncertainty, and lower liquidity, we continue to see short- and medium-maturity quality bonds as attractive,” the strategists added. Fixed income strategists ascribe the sell-off in longer-dated debt that began in June to intensified concerns over a budget deficit that appears set to eclipse its 2025 level, persistently above-target inflation, and a rash of corporate debt issuance competing with Treasurys for investors’ favor. As a result, many investors are turning to short-term investments , particularly ultra-short bond funds, amid persistent concerns that long-term bonds are no longer providing portfolio diversification. Ultra-short bond ETFs saw inflows of $12.8 billion in July, according to Morningstar Direct. — CNBC’s Jeff Cox and Cheryl Winokur Munk also contributed to this report.Read More
About The Author
