US Treasury bonds are the global benchmark for risk free assets. The 10 year yield sets the discount rate for equity valuations and the cost of borrowing worldwide.
Present situation
After a peak above 5.3% in early October, the US 10 year yield has stabilized around 5%. The AI related fears shaking equity markets for two weeks have pushed investors back into Treasuries, which are playing their safe haven role again.
Opportunity analysis
With yields near 5%, Treasuries offer attractive income and renewed diversification for balanced portfolios. A durable decline in yields would also ease pressure on equity valuations. The risk is a combination of persistent inflation, fueled by oil, and weaker real demand, which would leave the Fed less room to ease. Points to watch: the Fed decision and guidance, US PCE inflation and preliminary GDP.
Investor outlook: Positive
Treasuries are once again a useful portfolio building block. Locking in income near 5% while maintaining flexibility on duration is a reasonable stance.
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