Are Treasuries an accident in slow motion?

By Emily Flitter

NEW YORK (BestGrowthStock) – As U.S. Treasury prices and yields remain range-bound ahead of the Federal Open Market Committee’s next meeting on November 2-3, some analysts are beginning to wonder whether it’s time to call out danger in the exceptionally low yields found across the curve.

Citigroup analysts on Thursday called the 10-year Treasury note’s current yield and price “an accident waiting to happen” and announced they’d begun buying put options on the maturity. But other Treasury traders said conditions made it highly unlikely that yields would rise any time soon.

“I think what they’re identifying is that there’s an embedded risk right now that you’re going to lose a lot of money,” said William Larkin, a portfolio manager in Salem, Massachusetts with about $500 million under management, referring to the Citi analysts’ comments.

“The problem is that this whole thing is all based off where we are in the economic cycle,” Larkin said. “If you believe that we’re in the early expansion phase you’re going to look at the Treasury curve and say somebody is crazy to buy a 10-year treasury note at a yield that is lower than the long-term inflation rate … If you’re buying treasuries this late in the game you’re likely to lose some money.”

The Fed is expected to launch another Treasury purchasing program soon, a factor that could actually push yields lower in the coming months. Analysts are trying to decide, however, when to call the bottom of the yield dip.

Nevertheless, traders said the market would remain range-bound in the short term, with yields likely to remain inside a tight band in trading on Friday.

“10s have done a lot of work around the 2.50 percent level,” said Richard Bryant, senior vice president at MF Global Securities in New York.

“I don’t see much reason to move substantially away from that level although I do think the market is attempting to make some kind of supply concession.”

The Treasury Department said on Thursday it would auction $109 billion in two-, five- and seven-year Treasury notes and five-year Treasury Inflation-Protected Securities next week.

(Editing by James Dalgleish)

Are Treasuries an accident in slow motion?