At the beginning of 2016, US Treasuries for 5, 10 and 30 years traded at 1.76%, 2.27% and 3.01% respectively – broadly the lowest levels on record. Given the FED had just raised rates in December (for the first time since 2006), and was messaging a hiking cycle, the casual observer would then surely have judged it eye watering to be carrying large fixed income holdings.
Fast forward, and this week saw new records with the 5, 10 and 30 year Treasuries yielding 1.00%, 1.46% and 2.24%. This means long-dated US Government bonds are one of the best performing major market segments – the S&P BGCantor 20+ Year Treasury Index is up 17.47% YTD. And the trend is not unique, last week every Swiss government bond in issue, and the German and Japanese 10yr bonds, traded sub-zero.
We think these dynamics are important for a number of reasons:
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