Fidelity investments, a Boston-based fund company says that treasury yields will stay low because inflation is in check. Claus te Wildt, a renowned researcher at Fidelity , recommends that investors neutral on U.S debt should have atleast 30 percent of their bond portfolio in Treasuries. This report contradicts with Bill Gross, the co-founder of the world’s biggest bond fiund PIMCO, who is betting against America’s sovereign debt.
Ben S. Bernanke, the Federal Reserve chairman, says that he will keep on reinvesting proceeds of maturing debts which are held by the central bank in bonds. It is to be noted that the U.S debt gained 1.15 percent in April thereby posting the best returns in 8 months. This report according to Bank of America Merrill Lynch indexes overcomes concern about the USD 1.3 trillion budget deficit and S&P’s warnings that US’s AAA credit rating is at risk.
According to Bloomberg Bond Trader prices the benchmark 10-year yields, which averaged 4.10 percent over the past decade, fell to 3.16% in New York yesterday.
PIMCO reported on its website that it had -4% of its assets in government and related debt in April. The so called negative position of the company is achieved by usiong Derivates, Futures and shorting. Shorting is nothing but borrowing and selling assets with a view of making profit by buying it back once its price falls.
Gross in an interview stated that inflation will hurt bonds . The difference between 10-year notes and TIPS (Treasury Inflation Protected Securities) fell from 2.67% in April to 2.40% this month. April’s figures were the highest in three years. TIPS protects investors from the negative effect of inflation and is therefore a low-risk investment. After removing CPI based inflation, the 10 year treasuries yield 0.46 percent. This figure was 0.45 percent on the 6th of May, the least for the past three years.
In April this year, Standard and Poor put a “negative” outlook on the country’s AAA credit rating, saying that there is a thirty percent chance of a downgrade unsless the government reduces the budget deficits and national debt.
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