Treasury bond sell-off is now a buying opportunity

Investors over-shoot by over-reading Fed's tea leaves.
APR 22, 2013
All those investors rushing to get out of Treasury bonds before the Fed starts hiking interest rates might want to slow down and take a breather. With the yield on the 10-year Treasury up more than 50 basis points over the past 30 days and having hovered above 2.1% all week, some market watchers are saying the bonds have entered value territory. “At this point I think we've fully taken out the premiums and I think the market has over-sold a little bit,” said Jake Lowrey, a portfolio manager at ING U.S. Investment Management. The benchmark 10-year Treasury's yield rally kicked off at the start of the holiday-shortened week on Tuesday morning when most analysts expected international buyers to step in as the yield crested 2.2%. The yield did pull back a bit on Wednesday to around 2.12%, but by mid-day Friday it was back up to near 2.2%. The market is reacting to some mixed signals from recent comments from Fed Chairman Ben Bernanke that suggested the economy might be getting strong enough to support a tapering of the current quantitative easing policy that includes monthly purchases of $85 billion worth of Treasury bonds and agency mortgages. But even the most ardent Fed watchers aren't expecting any real tapering before at least next year. “People looking for a steep and protracted increase in rates will be disappointed, because if they go into cash they will have a hard time finding yield, and they may have a hard time finding a decent entry point back into bonds,” said Robert Tipp, chief investment strategist for fixed income at Prudential Inc. “I think it's a good point in the cycle right now to underweight cash, but not underweight bonds,” he added. “There's a risk we could have over-shot on the bond selloff, and I think we've gone above fair value at this point.”

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