The Debate Over the Next Move in Bonds Has Never Been Fiercer
It isn’t hard these days to find investors trumpeting the demise of the decades-long bull run in Treasuries.
But after the worst quarter since 1980, the bulls are ready to grab back some of the limelight. The result is that the debate about the next step in the world’s biggest bond market -- one with far-reaching implications for all asset classes -- is only intensifying.
On one side stand the likes of Bill Gross and Ray Dalio, who were among those declaring a bear market in 2018, when 10-year yields surpassed 3%, and who are again downbeat. For the other camp, including fund managers at Mitsubishi UFJ Kokusai Asset Management Co. and Northern Trust Asset Management, that’s all just noise. They say Treasuries are attractive on the view that inflation will remain tame and growth fueled by fiscal stimulus will fade.
It’s possible the bears have finally nailed it, with the Federal Reserve saying it will allow inflation to run hot for a bit, while unprecedented amounts of fiscal stimulus appear to be jumpstarting the rebound from the pandemic. Yet the bulls are resolute that there’s a long road to recovery, and they see paltry overseas rates stoking demand for Treasuries.
There’s even another take, in which neither side proves quite right -- Ben Carlson of Ritholtz Wealth Management says heightened volatility is the new reality, with the era of big trends essentially over.
Below is a collection of investors whose views capture the scope of the debate. They spoke as 10-year yields have retreated from pre-pandemic heights near 1.8%, and with inflation expectations near multiyear highs. Meanwhile, traders are assessing the tax proposals in the next U.S. stimulus plan, a likely key to the path of Treasuries, and potentially all markets, for the rest of 2021.