United States Yields

The US faces the same economic challenges as the rest of the developed world: deficient demand that may endure for a generation. The question is whether its modest demographic advantage will prevent an infection of negative interest rates reaching its shores. The short answer: probably not.

  • The short-end of the curve should be negative when the 30-year yields are approaching 1%. One of them is incorrect.

  • Yield curve valuation suggests long 30-year and short 10-year on a relative basis.

  • The negative yields on inflation bonds reflect their embedded protection against deflation and offer little benefit against inflation.

  • Corporate spreads are high and yet they remain lower than during the Great Recession of 2008, which suggests corporate bonds offer poor value.

  • Corporate yields offer a compelling relative value trade with a long 7-year and short 5-year position.

 

Disclaimer: All positions are suggestive of relative value and not intended as a recommendation or investment advice. Consult an investment advisor before implementing any investment strategy.

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