The rally in the US treasuries and the resulting drop in yields due to virus-scare could be limited as China stimulus and the US economic recovery will likely rein in haven demand, according to Shahid Ladha, head of G-10 rates strategy at BNP Paribas SA.
Key quotes
Ten-year yields may drop to a 2016 low before rising as high as 1.95% in the next three months.
It’s gone quite far in the US especially with broad risky assets looking up.
Convexity hedges, where investors seek to compensate for a drop in rates by buying longer-dated bonds, may have exacerbated the fall in yields.
The market will try at some point to look beyond onto the considerable investment and upside that comes after, as did happen in Hong Kong, China in 2003 following the SAARC outbreak.
The 10-year yield is currently trading at 1.57%. The yield had dropped to a low of 1.321% in July 2016.
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