What impact will rising Treasury yields and inflation have on bonds? What impact will rising Treasury yields and inflation have on bonds? http://www.federatedinvestors.com/static/images/fed-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\video\video-small-gallo.jpg March 22 2019 July 6 2018

What impact will rising Treasury yields and inflation have on bonds?

Senior Portfolio Manager R.J. Gallo offers his perspective on potential impact on fixed income from increasing interest rates, inflation and 10-year Treasury yields.
Published July 6 2018
My Content
R.J. Gallo, CFA
Senior Vice President
Senior Portfolio Manager
Head of Municipal Bond Investment Group
Head of Duration Committee
Video Transcript
00:10
Will global demand for U.S. Treasuries remain in force?
00:15
Currently the demand for treasuries is there but the returns are negative. Year to date treasury yields have risen pretty sharply. Call it 50-60 basis points across the curve. That has produced negative total returns for broad based investment grade fixed income indices. Treasuries alone, or the Barclays Aggregate for example, are down around 2% on a year-to-date basis. So the demand might be there for liquidity, for safety, but the returns have not been. As rates continue to back up we expect that individual investors, and institutions, are going to look at the stock and bond performance. Stocks have been on a tear for years. Fixed income, not so much. We've been selling off, we've been in a bit of a bond bear market to be honest. As rates have risen sharply so far we think that people will start to reallocate and look back to fixed income and the demand probably will pick up.
01:03
Is the fear over rising 10-year treasury yields overblown?
01:08
When you consider that the 10-year treasury's risen about 150 basis points since the BREXIT low, which was July of 2016, I think the answer to your question's yes. 10 year treasury is at around 290 now. Our view is that it's going to break three. It did for a while, but then Italy and other things came along. Including trade fights to bring it back down. As the year progresses we expect the 10 year to rise back above three. Back up somewhat more from here. In years to come, the question is how far does it go? When the Fed's targeting 2% inflation and you have sort of underlying potential growth of around two, I think four might be the ceiling. I doubt we'll even get there. So, yeah, I think there's a little too much concern about the 10 year rising considering what's happening and where we think it's going.
01:52
Views are as of June 25, 2018 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. Federated Investment Management Company 18-75024 (6/18)
Tags Fixed Income . Fiscal Policy . Taxes . United States . Income . Tax Aware .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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