The steady increase in shorter-maturity bond yields provides a thicker cushion against concerns around further rises in interest rates. Interest rates would need to jump more than one percentage point to wipe out a year of income in the two-year Treasury note. This is nearly double the cushion on offer two years ago – and far larger than the thin insulation provided by longer-term bonds today. We believe the short end offers relatively compelling income along with a healthy buffer against the prospects of further increases in yields.
Read an excerpt of BlackRock's commentary below, or download the complete commentary now.
- We see higher yields as an opportunity for investors to add exposure to shorter-term U.S. Treasuries. A rapid rise in short-term yields in U.S. government debt is restoring their appeal. This marks a major shift away from the post-crisis era of near-zero yields on such instruments. The upshot: Investors now have a viable alternative to cash with yields finally above inflation levels.
- Global stocks fell on fears over U.S.-imposed trade tariffs, while remarks from the Fed chair cemented the idea of at least three 2018 rate hikes. Global equities suffered another setback as U.S. President Donald Trump said the United States will impose tariffs on steel and aluminum imports — a move likely to increase tensions with major trading partners, including China. Fed Chair Powell’s first testimony to Congress briefly pushed benchmark Treasury yields back near four-year highs.
- China’s National People’s Congress is expected to rubber stamp a broad government overhaul that further centralizes power. The changes point to more centralized leadership within the Communist Party, tighter financial regulation and a smoother path for President Xi Jinping’s flagship reforms. Among the changes expected are a status upgrade for the People’s Bank of China (PBOC) to bolster its independence. A new PBOC governor is set to be named shortly as well. A decision is also expected to be made on a proposed constitutional amendment removing the term limits on the president and vice president.
Download BlackRock's complete commentary, or read one of their previous commentaries: An Upside U.S. Growth Surprise.
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