The performance of stocks and U.S. government debt is diverging. Equities have blasted higher since the October bottom, yet Treasury yields remain stubbornly low.
“How long will U.S. Treasuries stay at this level, and will they eventually move up to reflect tentatively improving economic conditions in the United States? It all depends upon Europe. If the European situation deteriorates from here, U.S. equities will almost certainly retreat, and U.S. Treasury investors will look justified in having accepted a low yield, since it was low in anticipation of this risk. In that situation, U.S. Treasury yields could move even lower,” writes BlackRock’s Matt Tucker at the iShares blog.
“If Europe claws its way out of the worst potential outcome and gets to a point of relative stability, the liquidity premium in U.S. Treasuries will likely dissipate and yields may move to more fundamentally justified levels,” he added. “But for now, it does appear that bond market and equity market investors are making very different bets.”
iShares Barclays 20+ Year Treasury
