Will U.S. follow Japan and Germany to rates below zero?


By Colby Smith
Financial Times, London
Tuesday, September 3, 2019

Some U.S. investors are girding themselves for the once-inconceivable prospect that the 10-year Treasury yield could be headed toward zero, as this year's giant rally in bonds shows few signs of easing.

In a world awash with roughly $17 trillion of negative-yielding government debt -- meaning buyers are guaranteed to get back less than they paid, via interest and principal, if they hold to maturity -- America's government bond market has long offered refuge to investors seeking higher returns.

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German government bonds maturing in 10 years now yield minus 0.70%, while Japan's 10-year debt yields minus 0.27%. In that context, the 1.5% yield on the 10-year Treasury looks attractive.

But roughly a month ago the 10-year note was yielding about 2%. The tight timeframe of that 50 basis-point slide has caught investors by surprise, leading some to put the prospect of further heavy falls on their radars.

"We could see zero," said Nick Maroutsos, the co-head of global bonds at Janus Henderson in Newport Beach, California, noting that any selloff in bonds so far, causing yields to rise, has been met with immediate buying. "The probability is increasing, particularly as we drop so rapidly."

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