- US Treasuries are historically expensive, reflecting low growth, inflation and rate expectations.
- Negative yielding debt will be a feature of the market environment for the foreseeable future.
- Even with historically rich valuations, we view US Treasuries as attractive in the context of a multi-asset portfolio. Geopolitical risks have become a core driver of economies and markets, are inherently unpredictable and illustrate the need for downside protection.
Perspectives matter. Tune in to our insights.
How did US Treasury yields get so low in a year?
3 main catalysts:
- a significant slowdown in global growth,
- central banks shifting from tightening to easing and
- a flight to safety as markets scrambled to price in downside risks of trade conflict.
As global financial markets are integrated, investors facing negative yields are incentivized to look for positive yielding alternatives. There is a scarcity of positive yielding defensive assets in the world, so global capital piles into what’s remaining.
And the good news from low yields?
- At least in the US, the low bond yields look enough to cushion the economy from a major downturn, in our view.
- US housing market is staging a healthy rebound amid lower mortgage rates
- Not easy for household-driven US economy to fall into recession with the housing market itself in an upcycle
Asset allocation views
- US Treasuries attractive within fixed income.
- We also like emerging market debt, including relatively high yielding Chinese bonds.
- Still broadly neutral on equities,
- Continue to see value in Japanese stocks which are finally gaining recognition for improved corporate governance and reform.
- While overvalued, the dollar remains stubbornly strong and should require clear economic stabilization outside of the US before moving convincingly lower.
What are low
US Treasury rates signaling?