In recent months, the bond market has not given much satisfaction but a large investor believes that the current situation is a buying opportunity at these levels.
While the 10-year T-Note yields rose by around 235 basis points in 2022, outstripping any annual rise in yields since 1962, there was some relief in the Asian session on Tuesday as the 10-year maturity benchmark return down seven basis points to 3.85%.
“The US Treasury market is recovering “he said in a tweet Jeffrey GundlachCIO of Doubleline Capitalwhich manages over $ 107 billion. I have been a buyer recently. “
This is a potentially bold assessment by Gundlach considering current market conditions and the Fed’s approach to rates.
Selling on the bond market accelerated this week with the announcement of the UK tax reform, consisting of large tax cuts, which pushed the yield on the 10-year gilt to above 4%. The strong sales on gilt they also triggered a domino effect on other markets and therefore yields rose significantly.
While the Federal Reserve, the leader of the global central banks of developed countries, has begun to raise interest rates at a steeper-than-expected pace. It also pledged to continue with the hikes until inflation brings inflation back to its 2% target. The US central bank led US rates in the range between 3% and 3.25%, a record since 2008, proceeding to the third consecutive squeeze of 75 basis points.
This proved to be a toxic combination for US Treasuries. Investors have burned at least twice this year after the momentum of the US bond market rebounds in May and June evaporated after Fed Governor Jay Powell hinted that despite the risk of recession in the United States, the central bank will continue with rate hikes until it reaches the 2% inflation target.
“US government bonds are attractive at current levels”he has declared Prashant NewnahaAnalyst of TD Securities Singapore. Five-year US Treasuries are returning 4.15%, while inflation swaps with a similar maturity are at 2.5%, signaling that the Fed is managing to cool inflationary pressures. While tactically there is an option to go long, strategically we see yields further upside given our forecast for a 4.75-5% Fed Funds target, argues Newnaha.