Strategists Shift to Bullish Stance on Long-Dated US Treasuries Amid Market Turbulence
Two veteran strategists, who have historically avoided government bonds, are now advocating for long-dated US Treasuries despite the market experiencing significant losses. The iShares 20+ Year Treasury Bond ETF, valued at approximately $47 billion, has faced its longest losing streak, falling for ten consecutive trading days. Nevertheless, this downturn has not deterred investors, as the fund has attracted around $5 billion in inflows this year, indicating a willingness to buy into the weakness of the market.
One strategist argues that the Federal Reserve will eventually need to cut rates to safeguard government finances, a move that could undermine the central bank's independence. The second strategist points to the current yields of about 5.3% for the 10-year and 5.6% for the 30-year Treasuries as attractive enough to warrant investment. This shift in sentiment comes amid expectations that the Fed will continue to raise rates, with the current target range set between 3.75% and 4%.
Despite the bullish outlook, risks remain substantial, including rising federal deficits, inflation near 3%, and increased corporate borrowing related to artificial intelligence investments. Additionally, higher fuel prices driven by geopolitical tensions in the Middle East are contributing to inflation expectations, which could further complicate the bond market's recovery. Investors are advised to remain cautious as volatility is likely to persist.
Source: KLEA News