BlackRock Says Treasuries Back as Havens, Yield Surge Over

(Bloomberg) -- Treasuries have regained their haven status, drawing an end to a slump that drove yields to a seven-year high last year, according to BlackRock Inc.

Benchmark 10-year yields jumped above 3.25 percent in October but they are unlikely to return to those levels as investors are now buying bonds again when stocks decline, said Rick Rieder, global chief investment officer of fixed income at BlackRock in New York.

“If you’ve got good news in China, if growth starts to stabilize and improve, the 10-year could certainly go back to 3 percent, but we are not going to see those big moves any more,” Rieder said in an interview on Bloomberg Television. “We still like the short-end, two-year notes, three-year notes. We’ve been actually extending more out the curve into tens recently.’’

The U.S. 10-year yield was around 2.69 percent in London Tuesday, having moved in a range of 2.54 percent to 2.70 percent this year. The surge in yield that topped out at 3.26 percent in October began from a record low of 1.318 percent in July 2016.

Treasury 10-year notes will work in a portfolio again, BlackRock’s Rieder said. “It gives you good yield, and real rates are attractive. In the last two months when the equity market has gone down the 10-year has performed really well. That is going to happen going forward, so I would argue the 10-year is pretty symmetric here in terms of where it goes up or down.”

BNP Paribas Wealth Management echoed Rieder’s view on short-dated Treasuries. “If you are a dollar-based investor then yes, there is some value in the short end of the curve,” Florent Brones, chief investment officer at the money manager said in an interview on Bloomberg Television. “If you have 2.5 to 2.7 percent for the two-year interest rate, you are not very dependent on the direction of the interest rates and you still get a decent return.”

Rieder said he has become more positive about emerging markets amid signs the Federal Reserve will call a pause to raising interest rates and as the dollar starts to weaken.

“With the Fed that is going to be more flexible, more patient, potentially pause, then you take the pressure off the dollar,” he said. “It’s a very big deal for emerging markets.”

He said the company has put “some money recently” in Argentine assets, while Brazil has been exhibiting greater stability and better growth dynamics.

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