U.S. Yields to Rise Once Trade Tensions Wane, Lombard Odier Says

(Bloomberg) -- The escalating U.S.-China trade tensions haven’t spurred the usual flight to safety in the dollar and Treasuries. So, when volatility subsides, bond yields may climb creating a double whammy for haven investors, according to Lombard Odier Investment Managers.

Since reaching a 2014 high of 2.95 percent in February, the benchmark 10-year Treasury yield has fallen about 13 basis points to 2.82 percent as of April 6, and the greenback has remained little changed.

“Once risk sentiment stabilizes, we could expect the U.S. dollar to continue to depreciate and U.S. Treasury yields to continue to drift higher,” strategists led by Salman Ahmed at Lombard Odier, wrote in a report this week. The firm manages about 233 billion Swiss francs ($242 billion) of client assets.

“The implication is that foreigners’ demand for these assets remains weak, in part driven by the political uncertainty and the cost of hedging,” they said.

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