As June\u2019s Federal Open Market Committee (FOMC) meeting approaches in the US, Andrea Iannelli, Fixed Income Investment Director at Fidelity International, outlines why US duration offers welcome protection for investors. <\/p>\n
He comments: \u201cUS Treasuries posted another month of positive returns, helped by ongoing uncertainty over the shape and timing of any fiscal reform in the US and a series of disappointing data releases. <\/p>\n
\u201cAt current levels, the \u201cTrump trade\u201d that saw 10yr US Treasury yields rise to 2.6% earlier this year has arguably been priced out. Although both valuations and market positioning have normalised in the last couple of months, we remain positive on US duration, as new headwinds to US growth, and yields, have begun to materialise. <\/p>\n
\u201cInflationary pressures have diminished somewhat, although the recent extension of the OPEC production cuts could provide some short term support to commodity prices. Moreover, the \u201cregulatory tightening\u201d that is taking place in China, as well as lingering geopolitical risks, could potentially have a negative spillover on global asset prices. <\/p>\n
\u201cDespite the latest disappointing inflation numbers, the Federal Reserve will likely hike rates again at the June meeting, where they are also expected to provide further guidance around balance sheet reduction. We do not see this as a game changer for US Treasuries, and expect the Federal Reserve to take a very cautious approach, keen to avoid another \u201cTaper tantrum\u201d. <\/p>\n
\u201cWith most risk markets trading at multi year highs, the room for error is limited and US duration offers a welcome protection in this environment.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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