Wall Street Managers Are Learning to Love Treasury Bonds Again

Slowly but surely, bond haters are vanishing across Wall Street — even as fresh market havoc remains a distinct possibility next year if still-raging inflation forces the Federal Reserve to ramp up policy tightening anew.

Undeterred, money managers are starting to rebuild their exposures across the battered $24 trillion world of Treasuries, on the conviction that the highest payouts in over a decade will help cushion portfolios from the damage wrought by further interest-rate hikes.

Morgan Stanley projects that a multi-asset income fund can now find some of the best investing opportunities in nearly two decades in dollar-denominated securities, including inflation-linked debt and high-grade corporate obligations. The interest payments on regular 10-year Treasuries, for example, has hit 4.125%, the highest since the global financial crisis.

Meanwhile Pacific Investment Management Co. reckons long-dated securities, the biggest losers in this era of Federal Reserve hawkishness, will bounce back as a recession ignites the bond-safety trade, with government debt acting as a reliable hedge in the 60/40 portfolio complex once more.

“People are excited, believe it or not,” said Maribel Larios, founder and CEO of Fiduciary Experts, a Murrieta, California-based registered investment advisor. “It’s all relative, as they’ve seen these fixed-income accounts pay little to nothing in the past. So, 4% — or even about 2% to 3% in some cash accounts — is relatively good now.”

Treasuries rallied again on Tuesday, pulling yields on the 30-year long bond back below 3.52%, a level last seen in September. The 10-year rate, meanwhile, has once again tested below 3.5% already and is now more than three quarters of a percentage point below its October peak, when it climbed above 4.3%.