As global bond yields soar to multi-decade highs, the attractive returns are prompting some of the world’s biggest investors, for the first time in years, to start rotating out of the US sharemarket to buy up fixed income.
US Treasury yields have rocketed since the Iran war kicked off in late February, amid the surging oil price and rising national debt pile that has fuelled fears that the US Federal Reserve will have to raise interest rates.
The US 10-year yield – a benchmark for the cost of borrowing worldwide – has soared 120 basis points to 5.2 per cent, near the highest level in more than two decades.
In Australia, yields have lurched higher, with the 10-year return hitting a 15-year peak of 5.43 per cent, up a huge 34 basis points since late August. It is now hovering around 5.3 per cent.
That slump in bond prices comes in stark contrast to US stocks, which have surged to record highs that have stretched valuations and made battered government debt look like a bargain.
BlackRock Investment Institute – the world’s biggest asset manager’s think tank – said on Tuesday that it was stepping back into short-term US government debt after six years on the sidelines.
BlackRock said aggressive interest rate increases from the Fed had gone too far.