US government bond yields start to rise

Returns rise for first time this year ending decline triggered by Middle East tension

                                

Investors buoyed by long-term economic optimism are moving away from the safe-haven of US Treasury bonds.

As prices fall, yields rise and the yield on benchmark ten-year US Treasury bonds has risen for the first time this year, settling at 1.809 per cent.

This is still lower than the figure at the close of last year – 1.909 per cent – but could indicate an end to the decline triggered by rising Middle East tensions.

At the end of last week, when global commodity, currency and stock markets encountered sudden turbulence after the killing of Iranian commander Qasem Soleimani, US bond yields fell to 1.787 per cent as investors sought security.

That reversed a trend that had sent yields near to their highest in months as investors opted for higher performing stocks rather than bonds.

Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union, thinks this latest yield rise is just the start. “It will play out over a series of days, weeks, months,” he said.

Tension and uncertainty remain but one set of statistics behind this positive outlook came from data provider IHS Markit. Its services purchasing managers index rose to 52.8 for December – higher than the predicted 52.2. Anything over 50 is growth.

Because services account for more than two thirds of US economic output, figures such as these are seen as a sign that the economy remains robust.

FURTHER READING: Treasury bond definition

FURTHER READING: Bond yield definition

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