The Outlook for Bond Investing

Interest rates reached their recent lows in July 2016 in the U.S. This article explains the bearish case for bonds. It points out that with the Fed reducing its purchases there don’t seem to be enough buyers to make up the difference. Plus, there probably are going to be more bonds issued in coming years because of rising debt.

The benchmark U.S. yield rose as much as six basis points to 2.54 percent, a level last seen in March, and the Treasury curve steepened the most in three weeks, as a looming glut of bond supply from the U.S., the U.K., Japan and Germany coincided with a surprise cut in purchases of long-dated Japanese government bonds by the Bank of Japan.

Even though central bank watchers said the BOJ’s actions aren’t interpreted as an imminent shift from ultra-accommodative policy by Japan’s monetary authority, it’s yet another sign of central banks stepping back from global bond markets — just as the U.S. is about to sell the most debt in eight years. Add to that rising market expectations around inflation, and traders are starting to wager that Treasuries are about to break out of their tightest range in a half-century.