Negative US treasury sentiment shows little sign of change

Against the backdrop of a US bond market sell-off in January, a look at the performance of European US government bond funds shows that not a single one has beaten the 10-year treasury note return of 7.25% over the three years to 31 December 2017, according to FE Analytics.

Negative US treasury sentiment shows little sign of change

The selloff in the sector extended on Monday with US Treasuries hitting their cheapest level in almost four years as the yield on 10-year notes rose to 2.71%.

According to FE Analytics, the best fund in the sector over three years to the end of last year was Pictet’s USD Government Bonds I fund, which returned 4.83% over this period.

It was followed by the Vanguard US Government Bond Index Institutional USD Accumulation tracker fund at 4.46%, then Union Bancaire Privee’s UBAM US Dollar Bond Accumulation USD at 3.01%, and the Massachusetts Financial Services’ (MFS’) Meridian US Government Bond A2 USD at 2.11%.

All the funds have seen their performance returns decline since January 2017.

The lacklustre results have been reflected in PA sister title Expert Investor’s data that has found time and again that the most negative sentiment has been reserved for developed manager government bonds among European fund selectors.

The research found that in all countries holders and sellers were competing for attention and the few buyers were overshadowed. In terms of flows, the asset class had suffered losses but also had a few monthly net gains.

The selling intentions of fund selectors has been stable since Q2 with 41% of fund selectors intending to decrease their holdings by the end of 2017.


Dollar weighs

These intentions could be impacted for European-based fund selectors by the US currency’s slide against the euro in the early weeks of this year and whether this is likely to become a trend throughout 2018.

These concerns were heightened when, speaking about the US dollar at the World Economic Forum in Davos last week, US Secretary of the Treasury Steven Mnuchin, said: “In the short term, where the dollar is, is not a concern of mine.”

“It will fluctuate. In the short term there will be benefits and issues with a lower dollar. In terms of the benefits, it is beneficial for our trade imbalances, there are also issues for people that hold dollars,” he said.

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