Pension Funds' Billions Loom as Force to Cap Long-Term Yields
Comment of the Day

April 11 2022

Commentary by Eoin Treacy

Pension Funds' Billions Loom as Force to Cap Long-Term Yields

This article from Bloomberg may be of interest to subscribers. Here is a section:

The unmooring of long-term Treasury yields just keeps gaining momentum. Yet there’s a wall of corporate cash lurking on the sidelines, which could curb further bond losses.

Demand from pension funds “should help cap the path of long-end rates ultimately,” Shahid Ladha, head of Group-of-10 rates strategy for the Americas at BNP Paribas SA, told Bloomberg Television Monday. “In terms of their appetite and possible support to U.S. fixed income, we have seen an average of $10 billion a quarter or $40 billion a year.” However, demand this month has been below average -- so it has room to pickup, he added. 

Ten-year U.S. rates climbed through 2.75% Monday for the first time since March 2019, following a wave of rising yields in Europe as traders intensified global bets on aggressive rate hikes from major central banks. While benchmark rates may climb even higher, likely breaking above the 3%, demand for Treasuries will probably resurface, Ladha said.

Eoin Treacy's view

When there was $17 trillion in negative yielding debt very few investors were worried about the surety of long-term losses. They were too interested in short-term momentum driven gains to give much thought to the long-term.

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