Tags: Treasurys | bond | investing | economy

Investors Shouldn't Give Up on Treasurys Just Yet

By    |   Thursday, 14 May 2015 06:00 AM

Treasury bonds have hit the skids lately, with the 10-year yield reaching a six-month high of 2.37 percent Tuesday as the bond selloff in Europe has spilled over to the United States.

But fear not fixed-income investors. With U.S. economic growth remaining sluggish and the Federal Reserve highly unlikely to raise interest rates until at least September, the bond market still has plenty of support.

Indeed, the 10-year yield already has dropped to 2.22 percent Wednesday morning.

The economy grew only 0.2 percent in the first quarter, and the Atlanta Fed's forecasting model puts growth at just 0.8 percent for the second quarter.

"The data in the U.S. does not support this move higher in yields, so if we get a spike higher in yields it may not be sustainable," Jim Caron, a bond portfolio manager at Morgan Stanley Investment Management, told The Wall Street Journal.

"There have been a lot of false starts" for the U.S. economy," he noted. For example, GDP surged 5 percent in the third quarter before decelerating to growth of 2.2 percent in the fourth quarter.

Elsewhere on the economic front, some of the remarks from former Treasury Secretary Larry Summers over the past few years could be read as extremely pessimistic for the U.S. economy and our role in global economic affairs.

But that's not the case, the Harvard professor says. "This is not a society that is stuck. It is a society that is uniquely able to be resilient through a constant process of savage self-criticism," Summers said at a conference Friday, according to CNNMoney.

He has warned that the economy might fall into a sustained period of weakness — secular stagnation. While secular stagnation is a "terrible thing," it's simply a "prediction as to what could happen if nothing is done" to stimulate the economy, Summers said.

"It is not an argument for fatalism. I for one am very optimistic about the future." The economy grew 2.4 percent last year as a whole.

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Treasury bonds have hit the skids lately, with the 10-year yield reaching a six-month high of 2.37 percent Tuesday as the bond selloff in Europe has spilled over to the United States. But fear not.
Treasurys, bond, investing, economy
332
2015-00-14
Thursday, 14 May 2015 06:00 AM
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