Magazine article Black Enterprise

A New Appetite for Bonds

Magazine article Black Enterprise

A New Appetite for Bonds

Article excerpt

As benchmark shifts, Treasuries are viewed as safe havens

Bond market participants have been clamoring for the change, and it finally happened. Earlier this year, the 10-year U.S. Treasury note replaced the 30-year U.S. Treasury bond, often dubbed the long bond, as the new benchmark for the fixed-income market. In following this practice, the U.S. has now emulated the debt markets of other governments that have used 10-year securities as their barometer.

The news comes at a time when U.S. Treasuries have outperformed other fixed-income sectors so far this year. Why? According to James Snyder, chief investment officer of Northern Trust, the volatile stock market has led to "safe haven" purchases of Treasuries as opposed to other fixed-income securities. "We believe legitimate credit concerns are beginning to build that justify taking a cautious approach to long-maturity spread sectors predominantly made up of corporate securities," wrote Synder in his monthly analysis of market conditions. "Finally, equity market volatility tends to hurt the relative returns of corporate bonds. If volatility remains high, it will have its biggest impact on longer-maturity, low-rated securities." The recent activity already bears out this sentiment as the issuing of corporate bonds reached its lowest point since September 1998.

Other factors that have made the Treasury bond market more appealing are supply and demand as well as the cooling of the economy. In late May, the market rallied as the Treasury Department completed its sixth debt buyback of the year, purchasing $2 billion in 30-year bonds. …

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