World Suddenly Has a Plausible Alternative to US Treasuries

In the first rush for investment safe havens in years, US Treasury bonds are facing serious competition as a destination for global funds.

- BLOOMBERG

Yields on the benchmark 10-year Treasury have tumbled about 40 basis points this year, briefly pushed below 4 per cent Monday by President Donald Trump's barrage of tariffs that economists say raise the risk of a recession.

In contrast, comparable rates in both Europe and Japan have gone up. In Germany, the 10-year bund at 2.61 per cent reflects the prospect of a flood of bond issuance as the government ramps up defense spending. Meanwhile, the rate on 10-year Japanese bonds has soared after spending years around zero and is now around 1.25 per cent as investors brace for tighter monetary policy there.

While both are still well below Treasury yields, they're at levels that makes them look more attractive than Treasuries to European and Japanese investors who hedge their dollar exposure when buying US securities. That might entice investors to shift allocations to their home markets, where the policy outlook appears more stable.