NEW YORK (Reuters) - While there seems to be no end on the horizon to this year’s dramatic rally in U.S. Treasuries that has collapsed yields more than a full percentage point, conditions are ripening for a reversal that could disrupt the market.
Some signals analysts track point to higher yields, although no one knows when the shift is coming.
The consensus view is that U.S. yields could go even lower. A protracted U.S.-China trade war, a darkening global economic outlook, and the Federal Reserve’s monetary easing stance are bullish for Treasury prices.
Still, yields this low are getting harder to justify, some analysts said. Some investors have hedged against a possible U.S. rate rise by reducing holdings of long-term bonds and grabbing other fixed-income products such as private debt and structured credit.
“This feels to me like dot-com level cockiness on this side of the bond bulls,” said Kevin Muir, market strategist at East West Investment Management in Toronto.
“I would just caution as somebody who has been through a lot of market shifts, that as we get more and more euphoric and more volatile, the chances of a big move, snapping back and hurting people in a big way will increase dramatically,” he added.
U.S. 10-year and 30-year yields have both dropped more than 100 basis points since January, on track for their steepest fall in eight and five years. Ten-year yields are currently at 1.521% US10YT=RR , while 30-year yields US30YT=RR are at 1.988% after hitting a record low on Wednesday of 1.905%.
GRAPHIC: Biggest monthly fall in 30-year USTs since 2011 - here
Evercore ISI technical analyst Rich Ross said the 10-year yield is the most oversold since 1998.
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