Across the globe, extraordinary central bank intervention geared toward stimulating growth has resulted in bond yields turning negative in some countries, primarily in parts of Europe. While U.S. Treasury (and other domestic bond) yields may seem low, negative interest rates elsewhere still make those bonds comparatively attractive to many foreign investors. That dynamic helps to sustain higher demand for Treasuries, while also helping to keep a lid on long-term rates in the U.S.
For example, the 10-year Treasury yield is trading around 2.40%, considerably higher than the 10-year German bund which yields around -0.10%. Of course, currency fluctuations create a risk for foreign investors and may reduce that attractiveness. Still, it may be a risk worth taking for some, while others may hedge the currency exposure depending on the cost of doing so.
Of course, a host of factors such as the ongoing trade dispute with China can create uncertainty and contribute to rate volatility, but the disparity in yields across global sovereign debt markets should provide additional demand for U.S. Treasuries and other bonds, and help to limit the upside in domestic yields, at least at the margins.
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