Foreign investors spurn U.S. Treasuries as curve threatens to invert

[Altavest_Erik]

TOKYO/LONDON (Reuters) - A worrying sign of inversion in the U.S. Treasury bond curve is dulling the appeal of the developed world’s highest-yielding bond market for foreign investors.

Overseas investors are reviewing their investments or shunning Treasuries as rates at the short end rise above those at the longer end and make it unprofitable for holders of these bonds to hedge their currency risks.

The difference between short- and long-term bond rates, or the yield curve, has contracted in recent weeks as rising U.S. interest rates meet growing doubts the world’s biggest economy may be slowing down, weighing on longer-dated yields.

And as short-term yields move higher than longer-term yields, the cost of hedging exposure to the U.S. dollar has gone up.

https://www.reuters.com/article/us-...es-as-curve-threatens-to-invert-idUSKBN1OA0J6

 

[Sig]

TOKYO/LONDON (Reuters) - A worrying sign of inversion in the U.S. Treasury bond curve is dulling the appeal of the developed world’s highest-yielding bond market for foreign investors.

Overseas investors are reviewing their investments or shunning Treasuries as rates at the short end rise above those at the longer end and make it unprofitable for holders of these bonds to hedge their currency risks.

The difference between short- and long-term bond rates, or the yield curve, has contracted in recent weeks as rising U.S. interest rates meet growing doubts the world’s biggest economy may be slowing down, weighing on longer-dated yields.

And as short-term yields move higher than longer-term yields, the cost of hedging exposure to the U.S. dollar has gone up.

https://www.reuters.com/article/us-...es-as-curve-threatens-to-invert-idUSKBN1OA0J6

A bit of a chicken and egg issue with attributing cause and effect here isn't it, not to mention just flat out unsupported in the assertion that a inversion of the yield curve is indicative of investors shunning Treasuries let alone specifically foreign investors shunning Treasuries? Treasury rates are a product of supply and demand for Treasuries. If the demand for long dated Treasuries goes up it drives the price up and thus yield down, and vice versa for the short end. So it's probably more accurate to say given the information presented in the article the only thing that could be concluded is that long Treasuries have increased their appeal and short Treasuries have decreased their appeal relative to long Treasuries by the group of all Treasury investors?

 

[murray t turtle]

Not to worry. Foreign investors still can buy US Realty. An the new FED approved cheaper, computerized appraisals can be better for sellers.It may not be as accurate; but its quicker.And some cash buyers may use a broker price opinion. Last day of 2008, or better yet 2009, turned out to be good time to buy some stuff. NOT a prediction

 

[Altavest_Erik]

Some additional color... https://www.zerohedge.com/news/2018-12-12/whats-next-market-here-are-key-cta-buysell-levels "Yet risks remain, primarily the market's inability to hold rallies (Calls again being sold tapped) as a result of what the Nomura strategist sees as year-end timing and the performance realities, which continue to dis-incentivize pursuit of higher US Equities over the next 3 weeks "and in fact, against ongoing signs of S&P futures deleveraging into rallies (notable “asset allocation” trade flows out of SPX into TY ~ 9:45am EST during a number of days this past week)", which is why he expects more up / down “chop” through the end of 2018…but with a lot of “puckering” and concern on a breakout

Another potential risk is that real US yields continue to suggest a "tightening" in US financial conditions, with 5Y TIPS yields just a few bps from 9.5 year highs again, as nominals hold while inflation breakevens chop around new 1.5 year lows. Meanwhile, with decelerating growth- trajectory—and now, what seems to be a “latent bid” in the long-end (as Nomura rates traders raise suggestions that Japan Lifers are continuing their USTS purchases unhedged) "it does feel like upside in US yields remains capped, especially with Term Premium fading to multi-year LOWS alongside the diminishing impact of the US fiscal stimulus going-forward", according to McElligott."