Bund Yield in Deep Freeze Means Treasuries More Sought After Now

(Bloomberg) -- U.S. Treasuries are outperforming German bonds amid a global debt rally spurred by trade tensions as the deeply negative yields on Europe’s safest assets deter some investors.

Germany’s benchmark yields have fallen to levels just shy of a record low seen in 2016 -- to some market participants, that suggests that there’s little room left for the rates to fall further. Treasuries provide better protection for investors during a flare-up of risk-off events than bunds, with yields on the latter having fallen so far below zero, according to Danske Bank A/S.

• “You have to buy U.S. Treasuries if you want to have risk-off protection. With bunds yields at this negative level, it is hard for them to perform,” says Arne Lohmann Rasmussen, a strategist at Danske Bank
• While German bonds still offer a yield premium over Treasuries for the U.S.-based investor, when hedged against exchange-rate swings, the latter are likely to move more on a risk-off event, according to Rasmussen
  • “It gives you a better yield, but not the same protection from a risk-off scenario as Bund yields only move slowly lower”
• German 10y yield steady at -0.17%; 10y Treasuries -4bps to 2.23%
• NOTE: Treasuries at 2% in Sight as Trade War Spurs Global Bond Rally

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma

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