U.S. Bonds Offering Relatively Good Value

Yields considerably higher for U.S. government bonds than for U.K. gilts, and Treasuries are cheapest in 23 years vs. German bunds.

The longest decline in Treasuries this year has left U.S. government debt the cheapest since March 2011 when measured by real yields—and the best relative value, compared with German bunds, in more than two decades.

After inflation, 10-year U.S. notes yielded 0.91 percent last week, or 1.77 percentage points more than real yields on U.K. gilts, the widest spread in 25 months. Versus Germany, the securities are the least costly in 23 years when adjusted for the recent record-low interest rates around the world that distorted the normal relationship, according to FTN Financial.

Easy Ownership

“As expensive as Treasuries are, if you compare them to other developed markets, it makes it easier to own them,” Raman Srivastava, the head of global fixed income at Boston-based Standish Mellon Asset Management Company LLC, which manages $170 billion, said in a telephone interview on May 15.

Bond Overreaction

Three Federal Reserve regional bank presidents, Richard Fischer of Dallas, Charles Plosser of Philadelphia, and Jeffrey Lacker of Richmond, called last week for the central bank to phase out the $40 billion monthly purchases of mortgage-backed securities. It’s also buying $45 billion of Treasuries a month.

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