Everything is relative.
A few months ago, it seemed the only way for US Treasury yields to go was up. The Fed was talking about rate hikes and oil was in the $90s.
Suddenly, the 2.09% yield on the US 10-year note (down another 2 bps today) sounds a little better. It’s not that 2% is an attractive return, it’s that all its rivals are far cheaper.
German 10s are down to 0.50%, Japan yields 0.32% and even Canada — where BOC rates are at 1.00% — yields 1.71%. The only spot yielding substantially more is Australia at 2.76% and perhaps that makes an argument for buying the beaten-down Aussie.
Traders have been trying (and dying) to short bonds for years but there’s a sense that everyone is finally giving up. A few months ago, Doubleline’s Jeffrey Gundlach was talking about 2.20% as if it were the bottom but on the weekend he warned 10-year yields could break the crisis low of 1.38% if oil falls to $40.
“Everybody worried about what would happen to the U.S. government [bond] market when the Fed ended [its third round of quantitative easing] last fall and stopped its heavy monthly government bond purchases,” he points out. “The answer, of course, is that foreign buying easily replaced declining government support of the market. And the strengthening dollar, which we think will continue, only makes U.S. bonds all the more attractive, for not only do foreign investors benefit from higher relative rates, but they also win on currency translation profits.”
