A surprisingly strong US economy and mixed signals from the Federal Reserve have fueled some of the wildest swings in Treasuries in recent memory. Add geopolitical angst and a surge in debt supply and you have a recipe for sustained volatility for months to come, market watchers say.
Dubbed the “world’s safest asset,” Treasuries have not lived up to that title lately as dramatic moves in yields become an almost daily occurrence. Just last week, the rate on the 10-year swung in a range of almost 40 basis points, buffeted by crosscurrents including resilient retail sales and jobless figures, a bevy of comments from Fed officials and rising demand for haven assets amid concerns of an escalating conflict in the Middle East.
That’s partly because the Fed is struggling to signal a longer-term vision for where interest-rate policy is headed, according to Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist. The rates curve aggressively steepened in response, with short-dated yields sliding while longer-maturity ones climbed to fresh multiyear highs.Price swings were also fueled by mounting concerns that the war between Israel and Hamas could spread throughout the region, potentially even drawing in the US.