Some investors are increasing exposure in the midst of a historic sell-off
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.
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.
Matt Smith, investment director at British fund manager Ruffer, has been adding exposure to 30-year Treasuries and 10- and 30-year Treasury inflation-protected securities in recent weeks, roughly doubling the “duration weights” in his portfolio, a measure of a portfolio’s price sensitivity to changes in interest rates.
“At these levels, we believe you have the tailwind of compounding interest and more than likely price appreciation ... because we believe yields will come down in 2024,” she said.To be sure, many remain doubtful the bond market will bounce back any time soon. They worry yields still have room to rise due to sticky inflation, as well as widening fiscal deficits and increasing government bond supply, all of which will see investors demand higher compensation for the risk of holding long-term debt.
Still, bond buyers like Ruffer’s Smith are encouraged by recent signs high yields have started to dent risk assets such as stocks and corporate bonds, a sea change from earlier this year when stocks kept climbing despite higher rates.
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