Global investors are returning to the previously battered government bond market, a sign that yields may have begun to peak.
According to Bank of America,Total inflows into sovereign debt markets totaled $2.8 billion in the past week, more than six months ago, according to the Department of Global Research and EPFR Global. The sell-off in Treasuries has been halted and benchmark yields have failed to break through new highs.
This is a major change in position strategy against a backdrop of lingering inflation concerns and the possibility that central banks may soon begin to scale back their easing measures. The yield on 10-year Treasuries rose as high as 1.7% in March and has not fluctuated much since.
Dutch InternationalAntoine Bouvet, a group strategist, believes that investors have digested the possibility of the Fed tightening monetary policy, and buyers are ready to lock in yields.
"investors try to arbitrage within a few months until the Fed is forced to tighten policy," Bouvet said. It refers to a strategy to obtain coupon returns by buying bonds.
"the risk of this strategy is that no one knows when the bond market will return to decline, so arbitrage gains could soon be wiped out," Bouvet said. "
The yield on 10-year Treasuries held steady at 1.62% on Friday, while the yield on German bunds fell two basis points to minus 0.13%. Italian bonds rose, yielding just over 1 per cent, off a 10-month high of 1.16 per cent hit earlier this week.