US government bonds, here are the risks and opportunities for Treasury buyers
The sharp repricing, with yields rising sharply, posed many doubts among investors after 2 April as to what to do with Treasuries
2' min read
2' min read
Alarm bells par excellence. The sharp repricing of the Treasury, with yields rising sharply, has posed many doubts among investors since 2 April; what to do with US government bonds?
To invest or not to invest
."The 4.5 per cent yield," explains Gabriel Debach, market analyst at eToro, "is tempting. But in an unstable world, yield is not enough: you have to understand what sustains it and, more importantly, what can erode it. US government bonds today offer attractive yields, among the highest in advanced economies, and if the Fed were to initiate a round of cuts, those who enter now could find themselves with yields locked in at premium levels and capital gains, thanks to falling rates."
What to do if already purchased?
."The advice," replies Mauro Valle, head of fixed income at Generali Am, "is to keep them in the portfolio, especially with a view to the medium to long term and diversification. A return in excess of 4% is still a positive real return for a European investor. The risk of seeing other phases of volatility is high, but a scenario with rates higher than the levels seen in the last 18 months is considered unlikely".
Aid to Treasuries
.Huw Davies, absolute return bond manager at Jupiter Am, concludes: "Another aspect to consider is that the idea of eliminating the Supplementary Leverage Ratio (Slr), which was introduced after the 2008 financial crisis to impose capital requirements on banks even for investments in government bonds, is gaining ground. Although designed to strengthen the soundness of the banking system, the Slr ended up reducing banks' propensity to hold Treasuries, squeezing market liquidity. According to US Treasury Secretary Scott Bessent, removing this constraint could free up new demand for government bonds, expanding the domestic investor base. While this is perhaps an optimistic view, a relaxation of capital requirements would likely make banks more willing to hold Treasuries on their balance sheets, helping to stabilise the market, even if only in part'.
Risks to be assessed
.There are three unknowns, however, that cannot be ignored:
