US Treasuries- A Screaming Buy?
Having gotten used to US Treasuries rate at below 2% for the longest time, 2 yr treasury yield of 4.3% is indeed enticing.
However, we do have reservations about a potential sovereign debt crisis that would lead to even the safest asset in the world being unsafe.
No doubt, we do not feel there is going to be a default but our relative value in the US Treasuries could devalue if they choose the printing press to get out of trouble.
Even China and Japan are reducing their US Treasuries holdings and selling them at losses given interest rate has gone up. Logically, it should be even more attractive to put in more funds now given a higher yield. So it could be their inference of things to come which is likely to be negative.
Moreover, interest rates are likely to go up further as long as inflation does not come down to at least below 5%, therefore what is attractive could get even more attractive.
In the meantime, we would stick to bonds that are denominated in Singapore Dollars as we feel more confident about the sovereign risk of the Singapore government. 1 year Singapore Treasury is at 3.7% whereas shorter duration good name corporate bonds are yielding around 4%-4.5%.
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