Trillion-Dollar Manager Amundi Sees Treasury Gains as Fed Delays

  • Ten-year yield to fall below 1.5% in coming months, Brard says
  • Five-year auction ahead, after demand waned at two-year sale

Is a Yield Backlash Around the Corner?

The Federal Reserve will refrain from raising interest rates this year and Treasuries are poised to rally, according to Amundi Asset Management, which oversees $1.1 trillion.

U.S. policy makers, who meet Tuesday and Wednesday, will stay on hold as they struggle to spur inflation, said Eric Brard, the firm’s global head of fixed income. Treasuries will also benefit because they’re attractive compared with bonds in Japan and Europe, where yields are negative, Brard, who’s based in Paris, said in an interview Monday. Treasuries fluctuated Tuesday, with yields close to one-month highs.

“Markets are under pressure of slower economic growth, slow inflation,” he said. “We have a lot of inflows going into the U.S. market. We will see continuing flows in the coming months. This is good for U.S. Treasuries.”

The Amundi Bond U.S. Aggregate fund has returned 6.6 percent in the past 12 months, according to data compiled by Bloomberg. The performance beats 80 percent of its peers, based on the figures.

The U.S. 10-year note yield dropped about one basis point, or 0.01 percentage point, to 1.57 percent as of 9:55 a.m. in New York, according to Bloomberg Bond Trader data. The 1.625 percent security due in May 2026 was at 100 1/2. Ten-year yields set a record-low 1.318 percent on July 6.

The yield will fall “well below” 1.5 percent in the months ahead, Brard said.

Headwind Potential

Treasuries fluctuated Tuesday as strategists predicted that Fed officials will keep rates steady this week, as they’ve done since liftoff from near zero in December. The expectation that policy makers would acknowledge signs of economic strength crimped the appetite for Monday’s auction of two-year notes, which drew the weakest demand since 2008.

The Treasury plans to sell $34 billion in five-year notes Tuesday, and $28 billion in seven-year notes Thursday.

“There are potentially some headwinds going into the five-year auction,” said Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets, one of the 23 primary dealers that trade with Fed. “If they sound too hawkish, there’s a risk that they’ll force five-year yields higher temporarily.”

The probability of a Fed increase this year is approaching 50 percent, the highest in about a month, futures indicate.

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