BlackRock’s Rieder Takes Dim View of Long Treasuries After Rout

  • Investors who sought longest bonds hold most vulnerable debt
  • ‘Not a lot of value’ in 30-year debt even after losses: Rieder

The longest-maturity Treasuries hold no appeal for BlackRock Inc.’s Rick Rieder even after two weeks of declines pushed 30-year yields to their highest levels since June.

U.S. 30-year bonds have lost 5 percent in September, heading for their worst month in a year and half, on concern that global central bankers are contemplating the limits of the record monetary policy measures they’ve deployed to buoy their economies. A gauge of the yield curve steepened 10 straight days amid the selloff, the longest streak since 2012, before halting that climb Friday.

Investors spent much of 2016 buying long bonds to maintain income as yields fell across the curve. They reaped returns of almost 20 percent through the end of August, based on Bank of America Corp. bond indexes. The move worked because longer-dated bonds tend to move the most when the market shifts. Now investors are left holding the securities most vulnerable in a selloff. Long-maturity Treasuries pared the losses Friday, even as U.S. data showed a bigger-than-expected jump in consumer prices.

“There’s not a lot of value in 30-year Treasuries,” even after the selloff, Rieder, chief investment officer for global fixed income in New York at the world’s biggest asset manager, said on Bloomberg Television. The Federal Reserve “is going to let inflation run hotter. That’s what we think will continue to steepen out the curve.”

September Slump

Thirty-year yields fell two basis points, or 0.02 percentage point, to 2.45 percent as of 5 p.m. New York time, leaving them up about 17 basis points since the start of last week. The yield reached 2.5 percent Thursday, the highest since June. The 2.25 percent security due in August 2046 was at 95 28/32. Demand for 30-year Treasuries fell to the lowest since February at a 30-year auction this week.

Hedge funds and other large speculators reduced net bets on Treasury-bond futures this week to the fewest since February, Commodity Futures Trading Commission data show.

Two-year yields rose four basis points to 0.76 percent in the U.S., while they were negative in Japan and Germany, giving investors reason to seek higher income streams from longer-term debt.

“Are central banks reaching the limit of what they can do?” said Marius Daheim, a senior rates strategist at SEB AB in Frankfurt. “What’s the next stage? That’s the big picture that is being discussed by markets now,” and is one factor “that could push longer-dated bond yields further up.”

The European Central Bank is studying ways to redesign its debt-buying program, raising speculation it will curb purchases of government securities.

BOJ Shift

The Bank of Japan will try to steepen its yield curve, increasing the difference between short- and long-term yields, at a meeting next week, according to Morgan Stanley MUFG Securities Co. in Tokyo. The BOJ would achieve that by cutting its negative interest rate further, while also reducing purchases of long-term bonds, the company said in a report.

Traders have been speculating for days that BOJ Governor Haruhiko Kuroda will implement the move as a way to support the nation’s lenders and support the economy. A steeper curve helps banks when they borrow for shorter terms and make long-maturity loans. It also provides savers greater returns for those willing to invest over several years.

The Fed may raise interest rates as soon as December, futures contracts indicate. U.S. data Friday showed the consumer-price index climbed 0.2 percent after being little changed the previous month. The median estimate of economists surveyed by Bloomberg was for a 0.1 percent advance. Meanwhile, the University of Michigan’s preliminary index of consumer sentiment held at the lowest level since April.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE