The world’s almost $13 trillion pile of negative-yielding bonds is looking like “quicksand” that risks engulfing much of the fixed-income universe, including the US, says JPMorgan Chase & Co’s Jan Loeys.
The prospect of Treasury yields dropping to zero may seem remote, with the 10-year benchmark now back above 2 per cent, the US jobless rate near a 50-year low and stocks close to record highs. But Loeys, a senior adviser of long-term investment strategy, lays out a scenario in which ..
It would be a multi-year process, in his view, that could be triggered by “a plain-vanilla recession” caused perhaps by an extended trade war and plummeting capital expenditures. As he sees it, that would push the Federal Reserve to cut rates to zero and resort to quantitative easing again as inflation ebbs. The net result: much lower yields.
“There’s a serious probability that in the next three years US Treasury yields are at zero, if not negative, and the whole market is sitting at ze ..
The 10-year Treasury yield, a benchmark for global borrowing, has never been below 1.318 per cent, which it dipped to in 2016 in the wake of the UK vote to leave the European Union. The notes gained Wednesday amid losses in stocks, driving the yield down 6 basis points to 2.04 per cent as traders added to bets on Fed rate cuts.
Loeys says investors ought to be prepared for the 10-year yield to dive much lower in at least two stages should the scenario he envisions unfold.
First, as it drops below 1 per cent, they should aggressively buy 30-year bonds while selling the dollar, and initially move away from stocks. Then, once the yield settles around zero, they should turn to higherincome securities, such as dividend-paying stocks, real estate investment trusts and emergingmarket local debt, unhedged for currency swings.
The lesson of the past decade from Japan and Europe is that the “zero and negative-yielding world is like a sand trap,” he said. “The quic ..
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