Asia Bond Investors See 2.3% as Sweet Spot to Buy Treasuries

  • Samsung Asset predicts U.S. 10-year yield will fall next year
  • Sumitomo Mitsui Trust says inflation will stay low globally

From Tokyo to Seoul, bond investors say a 2.3 percent 10-year Treasury yield is the sweet spot.

Sumitomo Mitsui Trust Asset Management in Tokyo, Samsung Asset Management in Seoul and Mirae Asset Global Investments’ Taipei office all say they plan to buy longer-term Treasuries if the benchmark rises to that level. The companies, which together manage $240 billion globally, say plunging oil prices will keep inflation in check.

A 2.3 percent yield would be an increase from 2.21 percent Tuesday. It compares with the high over the past three months of 2.37 percent. Investor appetite for Treasuries underscores the conviction an inflation rate that’s stuck near zero will support bond prices even as the Federal Reserve prepares to raise interest rates next week.

“Long-term Treasury yields will go down next year,” said Wontark Doh, the head of overseas fixed-income investment at Samsung Asset. “If the 10-year yield rises above 2.3, we have a plan to buy.”

The level is attractive because it’s close to this year’s high of 2.5 percent, he said.

Worth Buying

Hideaki Kuriki, a bond investor at Sumitomo Mitsui Trust, said he projects a range of 2 percent to 2.5 percent for 10-year yields. A figure of 2.3 percent is approaching the upper end of his band, making Treasuries worth buying, he said.

“Inflation will stay at a low level all over the world,” he said.

Tumbling oil prices are helping keep costs in check. West Texas Intermediate crude oil futures fell to a six-year low of $37.50 a barrel Monday. The Fed’s preferred inflation gauge was running at 0.2 percent in October, and it has been less than the central bank’s 2 percent target for more than three years.

The low inflation rate has helped drive a rally in long-term Treasuries even as investors prepare for the Fed to raise rates for the first time in almost a decade at its Dec. 15-16 meeting.

U.S. government securities maturing in a decade and longer have returned 2.6 percent in the past month, versus 0.3 percent for notes due in one to seven years, based on Bloomberg World Bond Indexes.

Shorter-maturity Treasuries are more sensitive to what the Fed does with its main policy rate, the target for overnight loans between banks.

December Liftoff

The probability the Fed will increase its benchmark by its next meeting December session is 78 percent, according to futures data compiled by Bloomberg. The calculation is based on the assumption the effective federal funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.

Mirae bought Treasuries last week when the 10-year yield rose to 2.3 percent, said Will Tseng, a bond investor for the company in Taipei. The firm plans to add more if it reaches that level this week, Tseng said in an interview Monday.

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