Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

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

Economy Mar 19, 2021 06:50AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A trader looks at screens while working on the floor of the New York Stock Exchange (NYSE) in New York
 
US10Y...
-2.01%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Kate Duguid

NEW YORK (Reuters) - The recent pace of the rise in yields in the U.S. Treasury market has been unsettling, according to several major bond fund managers who worry the market could be viewed as disorderly if the pace of rises continues.

Managers also cited some issues with liquidity as yields have moved upwards, with the 10-year Treasury yield up 80 basis points since January. It reached a 14-month high of 1.754% this week, fueled by the Federal Reserve's pledge to keep monetary policy loose, boosting economic growth and inflation.

Some analysts have compared the rise in yields to the 2013 "taper tantrum", when 10-year yields jumped 136 basis points to 3.06%, according to Rabobank.

"This isn't a market for bond math and market geeks," said Gregory Peters, head of multi-sector and strategy for PGIM Fixed Income. "It's not so much the rise in interest rates as it is the volatility and swiftness that's unsettling. There is real momentum around it."

Peters, who initially estimated the 10-year yield would drift in range of 1.25%-1.5% this year, said there was a "momentum to take rates higher here from a markets standpoint in a way that I underappreciated."

Yields have soared past market expectations. A Reuters poll in December of over 60 strategists showed they expected the U.S. benchmark yield to edge up to 1.2% in the following 12 months.

"(The 10-year yield) could go as high as 2% and that's really not more than a few trading days away at this point," said Gregory Whiteley, a portfolio manager at DoubleLine.

Fed Chair Jerome Powell has thus far brushed off concerns that the recent surge in U.S. Treasury yields might spell trouble for the central bank's extended easy monetary policy. But a rapid move higher, which can raise borrowing costs for companies and consumers, could eventually compel them to reconsider, said Whiteley.

"A rate rise that continues at the pace we've seen in the last six weeks will at some point come to be seen as a disorderly market that needs a response from the Fed," said Whiteley.

Bond managers attributed some of the force behind the move to speculators who are significantly short longer-dated Treasury futures, according to recent data from the U.S. Commodity Futures Trading Commission.

"The momentum right now is in the hands of the shorts," said Andrew Brenner, head of international fixed income at National Alliance, describing them as "bond vigilantes" - investors who sell debt holdings to pressure central banks to change monetary policy they view as inflationary.

LIQUIDITY ISSUES

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

Though 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 risen to pay for COVID-19 stimulus measures.

The bid-ask spread on the 10-year Treasury note, a measure of liquidity which shows the difference between offered and accepted bids, on Thursday reached its widest since Feb. 26, the day after a weak debt auction which sent the 10-year yield 20 basis points higher.

The Treasury market faced a liquidity crunch in March 2020 as the coronavirus was taking hold in the United States, until the Fed intervened to backstop the market.

"All the structural factors that contributed to poor liquidity that resulted in pricing dislocations in March, those are still in play. And that is contributing to the market overshoot," said Tiffany Wilding, North American economist at bond giant PIMCO.

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

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Mark Manley
Mark Manley Mar 19, 2021 7:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
tax spend tax spend tax spend
Shane Gg
Shane Gg Mar 19, 2021 3:59AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No worries folks, nothing to see here... everything is fine. Just those pesky "bond vigilantes" again.
Kaveh Sun
Kaveh Sun Mar 19, 2021 2:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Obama n Biden sold too much bonds for stimmy, end of story
Joel Schwartz
Joel Schwartz Mar 19, 2021 2:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
How are you always wrong?
David Stevenson
David Stevenson Mar 19, 2021 1:35AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
In other words, borrowing costs are higher which equals higher interest rates in the future to be passed on to retail borrowers.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email