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US real yields hit record low on growth concerns

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After inflation of the world’s most important government bonds reached record lows in the fall, the returns expected by investors had a significant impact on the global market as a whole.

Real yields on 10-year Treasuries fell further below zero on Monday as growing concerns about the outlook for economic growth added fuel to the recent recovery in the bond market.

Real yields (which measure the returns investors can expect when inflation is taken into account) fell to minus 1.127% as the sale of the stock market forced Asian investors into the security of government debt.

The real yield in the euro area also traded at a record low on Monday, with a 10-year real interest rate swap (a key indicator of future interest rates across the currency) reaching minus 1.65 percent.

Negative real yields pose a major problem for pension funds and other long-term asset allocators who are also working on the highly valued stock market.

One of the significant negative real yield impacts is the emergence of various other asset classes. This makes the returns offered more attractive than bonds.Last year, investors had record low real yields “Everything gathers” From gold to the stock market.

The constant progress in the bond market over the past few weeks has surprised many investors betting on further increases in yields after a significant sellout at the beginning of the year.

While many are pointing to investor positioning and light summer trading conditions to explain the move, they are also being fed by a reassessment of optimistic global growth expectations. Spread of delta coronavirus mutants..

Nominal bond yields plummeted from their March highs, when inflation expectations fell slightly, and real yields fell below last year’s record valley.

The break-even point for the US 10-year (the gap between real and nominal yields, which is an indicator of investor inflation expectations over the next 10 years) was 2.33% on Monday, down from more than 2.5%. Seen in May, it still exceeds the Federal Reserve’s 2 percent target.

“Although the underlying growth background is very strong, the market has moved from the idea of ​​reflation to the fear of stagflation,” said Jamie Fay, global macro strategist at Citi. Stated.

Market unrest is rising ahead of Wednesday Federal Reserve BoardChairman Jay Powell may provide clues about the US Central Bank’s schedule to end the bond-buying program that has supported the market through a pandemic.Traders have reduced expectations about how fast the Fed will be Raise interest rates In a more uncertain economic outlook.

Prolonged solid interest rates are a recipe for lower real yields, and the Fed and other central banks are more tolerant of rising inflation expectations, according to Peter Chatwell, head of multi-asset strategy. It suggests that it will be. Mizuho.

“Real yields tell us the truth about how the Fed’s policies translate into fairly high inflation in the medium term,” he said.

US real yields hit record low on growth concerns Source link US real yields hit record low on growth concerns

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