Bond managers say pace of rise in U.S. bond yields ‘unsettling’

Bond managers say pace of rise in U.S. bond yields ‘unsettling’

News: Bond managers say pace of rise in U.S. bond yields ‘unsettling’.

NEW YORK (Reuters) – The recent pace of spike in U.S. Treasury market yields has been worrying, according to several major bond fund managers who fear the market could be viewed as disordered if the pace of the spike continues.

Managers also cited some liquidity issues as yields have risen and the 10-year government bond yield has increased 80 basis points since January. It hit a 14-month high of 1.754% this week on a pledge by the Federal Reserve to keep monetary policy loose and stimulate economic growth and inflation.

Some analysts have compared the increase in yields to the 2013 “taper tantrum” when 10-year yields rose 136 basis points to 3.06%, according to Rabobank.

“This is not a market for bond mathematicians and market freaks,” said Gregory Peters, director of multi-sector and strategy for PGIM Fixed Income. “It is less the rise in interest rates than the volatility and speed that are worrying. There is a real dynamic. “

Peters, who originally estimated the 10-year return this year would be between 1.25% and 1.5%, said there is “a momentum to rates here from the standpoint of the markets in a way about it.” increase that I underestimated “.

Returns have exceeded market expectations. A Reuters poll of over 60 strategists in December found that the US benchmark return is expected to increase by up to 1.2% over the next 12 months.

“(The 10 year return) could be as high as 2% and that really is no more than a few trading days at this point,” said Gregory Whiteley, Portfolio Manager at DoubleLine.

Fed chairman Jerome Powell has so far allayed concerns that the recent surge in US Treasury bond yields could cause problems for the central bank’s expanded easy monetary policy. But a rapid surge that can add to the cost of credit for businesses and consumers could ultimately force them to reconsider, Whiteley said.

“A rate hike that continues at the rate we’ve seen over the past six weeks will at some point be seen as a disordered market that needs a response from the Fed,” Whiteley said.

According to recent data from the US Commodity Futures Trading Commission, bond managers have attributed some of the force to speculators who are short-term Treasury futures.

“The momentum is in the shorts right now,” said Andrew Brenner, director of international fixed income at National Alliance, describing them as “bond vigilantes” – investors selling debt to central banks under pressure to set their monetary policy to change as inflationary.


Bond managers also cited poor liquidity and price dislocations as recurring problems in the market.

While the treasury market is historically the deepest and most liquid in the world, demand for treasuries has been rocky as the supply of new debt has increased to fund the COVID-19 stimulus measures.

The bid-ask spread on the 10-year Treasury bill, a measure of liquidity that shows the difference between offered and accepted bids, hit its largest Thursday since February 26, the day after a weak debt auction hit the 10 year old gave yield 20 basis points higher.

The treasury market faced a liquidity crisis in March 2020 when the coronavirus hit the US until the Fed intervened to stop the market.

“All of the structural factors that contributed to poor liquidity and led to price changes in March are still at play. And that helps outperform the market, ”said Tiffany Wilding, North American economist at bond giant PIMCO.

Reporting by Kate Duguid; Adaptation by Megan Davies and Lincoln Feast.

Original Source © Reuters

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