Apocalypse now for bonds? US Tips see yields turn positive

A sign that the great sell-off in bonds could be imminent was seen this week after yields on Treasury Inflation Protected Securities (Tips) turned positive.

Tips passed the latest threshold in their dramatic yield rise since the beginning of the year on Monday when the yield on the 10-year note turned positive.

Having risen dramatically from lows, the yield has been trading around 0%, but the “ask” yield registered at 0.068% on Monday, according to Tradeweb.

It was the first time since January 2012 that the 10-year Tips yield turned positive, Tradeweb data showed, and it could be a sign that bonds are now out of favour.

Yields on 10-year treasuries also rose overnight, and experts have said a lack of inflation is making them dump 10-year bonds and go higher up the yield curve, such is the lack of concern over rising prices.

“We don’t think inflation is a big threat,” Andrew Wickham, head of U.K. and global fixed-income at Insight told Bloomberg.

Tips have sold off since the start of the year, pushing yields up from their recent low of -0.913% in December.

The move above 0% is the first time they have traded in positive territory for 18-months, and could well be a hint that the bond market is in-line for some real pain.

The deciding factor will be if Fed boss Ben Bernanke (pictured) – who is doing all he can to flag up the potential end of QE in the US – can continue to walk the tightrope he is on. If he falls – and he may have already – the sell-off could be brutal.

 

This article was first published on Investment Week

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