Treasury Yields Are Being Hemmed in by a Wall of Money From Asia
Asia’s Money Wall Looks to be Keeping a Lid on Treasury Yields
(Bloomberg) -- There’s a wall of money out of Asia capping Treasury yields. It’s about to get bigger.
For 10-year U.S. debt, the 0.70% to 0.75% yield range has acted as a ceiling in the past six weeks, and the rate was around 0.68% in New York trading Thursday morning. Traders point to motivated buyers out of Asia, with bonds often gaining in early trade when yields are in this range, an indication of dip buyers attracted to the levels.
There’s a school of thought developing that buying of dollar products from Asia is about to get bigger, mostly due to how economies are reopening across the region. Traders at large funds have probably been less willing to be aggressive in purchasing some less liquid bonds, often known as spread products for being quoted as a spread over Treasuries, while working from home.
That may change as investors and bankers from Hong Kong to Australia return to offices. Japan lifted its state of emergency on Monday.
Recent data out of Japan show strong demand for dollar-denominated spread product, which includes mortgage-backed paper, agency bonds and corporate bonds. In March, Japanese investors vacuumed up a record $36.6 billion of agency debt.
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