JPMorgan Asset Sees Rush Into U.S. Bonds in Negative-Yield World
JPMorgan Asset Says Investors Likely to Pile Into U.S. Bonds
(Bloomberg) -- The rush into U.S. bonds will become even bigger as investors seek safety in a negative-yield world, according to JPMorgan Asset Management.
Treasuries extended their rally after the Federal Reserve’s emergency rate cut on Tuesday sent 10-year yields below 1% for the first time. Bond yields tumbled to record lows from London to Sydney, reflecting a volatile mix of fear over the coronavirus fallout and rush for higher returns after Treasuries entered uncharted territory.
“The Fed rate cut validates the current rate environment and supports buying and holding high-quality duration,” Bob Michele, global head of fixed income at the asset manager, said in an email. “This should lead to an acceleration of flows into the U.S. bond market from negative-yielding bond markets as the cost of hedging to euro or yen has been diminished.”
The Fed’s half-point cut on Tuesday was the first such emergency move since the 2008 financial crisis, taken amid concerns about the global economic fallout from the virus outbreak.
JPMorgan Asset is also watching to see how credit may be extended to small and medium-sized businesses that may face cash shortfalls as business declines.
“The Fed rate cut paves the way for the Small Business Administration to extend credit at a lower cost to needy borrowers,” Michele said. “We expect the capacity of the SBA to be increased if the infection rate in the U.S. accelerates.”
--With assistance from Rita Nazareth.
To contact the reporters on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net;Ruth Carson in Singapore at rliew6@bloomberg.net
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Andreea Papuc, Cormac Mullen
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