Benchmark 10-year Treasury yields may tumble to a never-before-seen 1.25 percent as investors seek alternatives to lower interest rates around the world, according to Prudential Financial Inc.
“We’re going to be low and range bound,” said Robert Tipp, the head of global bonds and foreign exchange for fixed-income division of the second-largest U.S. life insurer. “This is an extremely low-interest-rate world. The higher-yielding products are going to be dominating,” he said Tuesday on Bloomberg Television.
Ten-year yields will be in a range of 1.5 percent to 2 percent for most of the remainder of 2016, said Tipp, who is based in Newark, New Jersey. A decline to 1.25 percent would be the bottom end of the range, he said, breaking the previous low of 1.38 percent set in 2012. The yield was 1.76 percent on Wednesday. Pacific Investment Management Co. said it likes Treasuries compared to lower-yielding AAA sovereign bonds. Germany’s 10-year bond, which carries the top rating, yields 0.17 percent. In Japan, which has a lower rank, the 40-year yield dropped to a record 0.305 percent.
Ten-year yield fell two basis points Wednesday. The price of the 1.625 percent security due in February 2026 rose 6/32, or $1.88 per $1,000 face value, to 98 3/4 in Tokyo, according to Bloomberg Bond Trader data. U.S. debt has returned 0.7 percent in the past month, beating the next five biggest debt markets, which are Japan, Italy, the U.K., France and Germany.
In July, when the 10-year yield was around 2.35 percent, Tipp predicted a path of stable to lower U.S. yields. The benchmark went on to fall to almost 1.5 percent in February.