CIO favors high-quality investment grade bonds in the intermediate part of the yield curve, which it believes offer attractive risk-return profiles and the chance to lock in compelling yields. (ÃÛ¶¹ÊÓƵ)
Worries about US fiscal sustainability also caused a sell-off in US Treasuries in May when an earlier version of the bill passed the US House of Representatives. Anxiety among bond investors has since calmed with 10-year and 30-year Treasury yields now 25 and 23 basis points below their May peaks, respectively. However, the Committee for a Responsible Federal Budget estimates the bill could add USD 4.1 trillion to the deficit over the next decade—or USD 5.5 trillion if all tax cuts are made permanent. As these developments settle in, investors will be alert for renewed signs of strain in the US Treasury market, this week and beyond.
The Chief Investment Office's (CIO) view is that while the US fiscal outlook still requires careful monitoring, the fundamentals for the Treasury market remain solid. US debt remains sustainable, supported by the dollar’s perceived safe-haven status, deep and liquid markets, and policymakers’—especially the Fed’s—commitment to addressing market disruptions.
CIO expects bond yields to trend lower over the remainder of the year as the Fed resumes its easing cycle, with a total of around 100 basis points in rate cuts anticipated, beginning in September (for more, read the ÃÛ¶¹ÊÓƵ HV Daily: ).
Against this backdrop, CIO favors high-quality investment grade bonds in the intermediate part of the yield curve, which it believes offer attractive risk-return profiles and the chance to lock in compelling yields.
Original report -
