BlackRock Inc., the world’s biggest money manager, says U.S. Treasury 10-year notes yielding less than 3 percent still have value in today’s low-inflation environment.
“U.S. Treasuries don’t look that bad, relative to the rest of the world,” Chief Investment Officer Rick Rieder said in a television interview on “Bloomberg Surveillance” with Tom Keene. “Given the liquidity, the size of the markets, owning some duration is agreed by many as pretty OK. At these levels today, U.S. Treasuries at 2.43 percent aren’t that bad.”
A worldwide bond-market surge starting in January has pushed yields to the lowest levels in a year on growing evidence central banks from the U.S. to the euro area, Japan and the U.K. can keep stimulating economic growth without igniting inflation.
The benchmark U.S. 10-year yield fell as low as 2.42 percent today in New York, the least since July 3 and down from 3.05 percent on Jan. 2. German 10-year bund yields were at 1.34 percent, with similar-maturity Japanese government debt at 0.57 percent, Spanish at 2.83 and Portuguese at 3.53 percent.
Government securities climbed across Asia, following a rally yesterday that drove the yield on the Bloomberg Global Developed Sovereign Bond Index to 1.28 percent, the least since May 2013. Australia’s 10-year yield dropped to an 11-month low, Japan’s slid to the least in 12 months.
Bonds rallied yesterday in the wake of a report showing German unemployment unexpectedly rose in May. Data from the Commerce Department in Washington showed today the U.S. economy contracted for the first time in three years from January through March.
Globally, “the near-term risk is that we continue to decelerate, inflation-wise,” Rieder said.
European Central Bank President Mario Draghi said this week that policy makers need to be “particularly watchful” of low inflation, with consumer-price increases in the euro region less than half the ECB’s goal of just under 2 percent since October. Bank officials meet June 5.
“You have a dynamic today that is at play that I’d say is truly extraordinary, and I’d argue is truly historic, where Draghi and ECB are going to be incredibly aggressive going forward,” said Rieder. “That is driving European bond spreads.”
The U.S. Federal Reserve, which began in December tapering its monthly debt purchases through its quantitative easing program, is likely to wind them down completely by the fall, central-bank Chair Janet Yellen has said.
“I think the 10-year yield is going to drift higher as economic growth improves,” Rieder said. “We move to a 3 percent 10-year. But the backdrop around keeping them in a range is profound.”
BlackRock said on April 17 that first-quarter profit rose 20 percent as investors added money to its funds, boosting assets and the fees for managing them. BlackRock attracted about $27 billion in the quarter, down from $40 billion in the last three months of 2013.