Analysis-Bond buyers dip toes in long-term Treasuries despite higher-for-longer rate fears
By Davide Barbuscia
NEW YORK (Reuters) — Some investors are increasing exposure to longer term U.S. Treasuries in the midst of a historic sell-off, as spiking yields promise to juice returns despite expectations that interest rates will not come down quickly.
Bets that Federal Reserve rate hikes aimed at taming inflation would cause a recession and send Treasuries rallying have ended badly this year, with a resilient U.S. economy bolstering the case for higher rates for longer. As a result, Treasuries are on track for an unprecedented third straight annual loss.
Some of those bets were upended last month when the Fed updated its forecasts, implying another hike this year and projecting high rates will continue through 2024. That pushed long-term yields to 15-year highs as the market finally embraced «no-landing» or «soft-landing» scenarios in which the central bank curbs inflation without causing a recession.
But the latest surge in yields, which rise when bond prices fall, has made long-dated Treasuries more attractive to some investors because they can lock in returns of about 5% on 10 or 30-year U.S. government bonds. By comparison, many believe the returns on shorter-dated debt will likely decline over the same period.
Felipe Villarroel, portfolio manager at TwentyFour Asset Management, said he recently swapped some 10-year Treasuries for higher yielding 30-year Treasuries. At these levels, yields give “a massive cushion in your total returns" to protect against bond prices falling further, he said. Total returns on bonds include interest payments and price changes.
In the week ending Oct. 11, Treasuries saw the largest weekly inflows — $7.2 billion — since March 2023, Bank of America Global Research said in a note.
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