Investment manager Schroders, which had been underweight US Treasuries for much of the past year, has begun buying 10-year Treasuries. James Ringer, global fixed income manager at Schroders, stated that his conviction had softened, and the firm is "no longer outright bearish on US Treasuries." This shift comes as valuations have improved.
Despite covering their underweight position in US Treasuries, Schroders still prefers to express positive duration views in other markets, specifically mentioning Australia and Canada. Other asset managers like BNY Insight Investment and Impax Asset Management are also cautious on the long end of the US curve, favoring shorter duration opportunities or maintaining a "modest underweight."
The reluctance from some managers to invest in the long end of the US curve is tied to expectations of a further steepening of the US yield curve, as underlying economic fundamentals are not expected to improve. There is also a risk that the bond market might test Treasury Secretary Scott Bessent's ability to manage long-term yields. Schroders had previously based its underweight position on expectations of persistent inflation, supportive fiscal policy, and a tight labor market in the US. However, a 10-year yield at 1.75% was previously identified by Schroders as a key level for positioning.
Several factors are currently pressuring global government borrowing costs, including inflation concerns, increasing demand for a greater premium on medium- and long-term government debt, and escalating geopolitical tensions. The 10-year Treasury note yield recently reached 4.818%, its highest level since November 2023, while the 30-year Treasury yield was at 5.259%. New York Federal Reserve President John Williams attributed the spike in Treasury yields to a strong economy, though he is still processing recent economic data to determine the need for further interest rate hikes. Meanwhile, Treasury Secretary Scott Bessent has deployed debt buybacks to try and rein in long-term borrowing costs, targeting securities from the 10-year to 30-year maturities.
