Bond Market Selloff Deepens as Money Managers Pile Into Cash

New York (Sept 13)  US Treasuries fell, sending the yield on the benchmark 10-year note to the highest in three months, as a Bank of America Corp. survey showed investors ramping up cash holdings to near the highest in 15 years.

Longer-dated securities, which have been outperforming in recent months, led losses. The difference between yields on Treasuries due in two and 30 years, a gauge of the yield curve, widened to 167 basis points, the most on a closing basis since June 30. Money mangers upped their cash hoard to 5.5 percent, according to the September survey by Bank of America, near the highest since November 2001. A record 54 percent of survey respondents said stocks and bonds are overvalued.

After more than two months of market calm post-Brexit, volatility is surging as concern escalates that central bankers globally are reconsidering the efficacy of extending monetary stimulus that’s driven yields to unprecedented lows. A lack of commitment from central bankers globally to extend their easy money policies threatens bond bulls who face potentially higher interest rates in the U.S. as soon as next week.
“There is a new theme that central banks are sort of at the end of their rope,” said Thomas Roth, senior Treasury trader in New York at MUFG Securities Americas Inc. “There is concern the banks could pull away” from the policies that have backstopped demand.

The yield on the benchmark 10-year note rose eight basis points, or 0.08 percentage point, to 1.74 percent as of 1:03 p.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 was 97 26/32.

The U.S. Treasury’s $12 billion auction of 30-year bonds Tuesday drew a yield of 2.475 percent, above the level indicated in pre-sale trading. The bid-to-cover ratio, at 2.13, is down from 2.33 in the last 10 sales, signaling weaker demand. Primary dealers, which are obligated to bid at auctions, took 37.5 percent, the highest since August 2015. Meanwhile, direct bidders, investors who place bids with the Treasury, purchased 4.6 percent, the least since September 2009.

The Bank of America global fund manager survey was conducted Sept. 2 to Sept. 8. More than 170 participants with $486 billion in assets responded, according to a report by the Charlotte, North Carolina-based bank published Tuesday.

Source: Bloomberg