July 29 (Bloomberg) -- Baring Asset Management is
“bullish” on Treasuries on the expectation that the turmoil
caused by a U.S. credit-rating downgrade will cause investors to
flock to the nation’s government bonds.
Treasuries are likely to gain as the downgrade hurts
government-sponsored enterprise paper, such as the $5.2 trillion
market for agency mortgage bonds issued by Fannie Mae and
Freddie Mac, Toby Nangle, London-based director of asset
allocation at Barings, wrote in response to e-mailed questions.
While they may receive a “perverse” short-term gain, the
U.S.’s deteriorating fiscal position means the dollar will fall
and Treasury yields will eventually rise, he said.
“The immediate impact of a downgrade would be a bid for
Treasuries,” said London-based Nangle, who helps oversee about
$53 billion. “The allure of Treasuries will dampen in the
medium term as the reserve currency status is undermined. With
persistent U.S. fiscal weakness, there is no reason why
Treasuries should rally in the long term.”
Yields on benchmark 10-year Treasuries have fallen 89 basis
points, or 0.89 percentage point, since reaching a nine-month
high of 3.77 percent on Feb. 9. The securities yielded 2.88
percent as of 2:17 p.m. in London today.
The administration of President Barack Obama says the
Treasury’s borrowing authority runs out Aug. 2 and that it may
not be able to pay all of its bills after that date unless the
nation’s $14.3 trillion debt limit is raised. The public will be
briefed no earlier than when financial markets close today about
priorities for paying the nation’s obligations if the U.S. debt
limit isn’t raised by then, a Democratic official said.
BlackRock Inc., Franklin Templeton Investments, Loomis
Sayles & Co., Pacific Investment Management Co. and Western
Asset Management are among those warning the U.S. may lose its
top-level debt rating even if the debt limit is raised.
“bullish” on Treasuries on the expectation that the turmoil
caused by a U.S. credit-rating downgrade will cause investors to
flock to the nation’s government bonds.
Treasuries are likely to gain as the downgrade hurts
government-sponsored enterprise paper, such as the $5.2 trillion
market for agency mortgage bonds issued by Fannie Mae and
Freddie Mac, Toby Nangle, London-based director of asset
allocation at Barings, wrote in response to e-mailed questions.
While they may receive a “perverse” short-term gain, the
U.S.’s deteriorating fiscal position means the dollar will fall
and Treasury yields will eventually rise, he said.
“The immediate impact of a downgrade would be a bid for
Treasuries,” said London-based Nangle, who helps oversee about
$53 billion. “The allure of Treasuries will dampen in the
medium term as the reserve currency status is undermined. With
persistent U.S. fiscal weakness, there is no reason why
Treasuries should rally in the long term.”
Yields on benchmark 10-year Treasuries have fallen 89 basis
points, or 0.89 percentage point, since reaching a nine-month
high of 3.77 percent on Feb. 9. The securities yielded 2.88
percent as of 2:17 p.m. in London today.
The administration of President Barack Obama says the
Treasury’s borrowing authority runs out Aug. 2 and that it may
not be able to pay all of its bills after that date unless the
nation’s $14.3 trillion debt limit is raised. The public will be
briefed no earlier than when financial markets close today about
priorities for paying the nation’s obligations if the U.S. debt
limit isn’t raised by then, a Democratic official said.
BlackRock Inc., Franklin Templeton Investments, Loomis
Sayles & Co., Pacific Investment Management Co. and Western
Asset Management are among those warning the U.S. may lose its
top-level debt rating even if the debt limit is raised.
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