Interest paid on the 10-year Treasury note reached 1.34 percent early Wednesday, just below the previous record set in 2012. Historically, when concerns have flared about a potential recession, investors have shifted money into havens such as U.S. Treasuries and sent yields falling.
What makes the record-low Treasury yield something of an oddity is that the U.S. economy - the world's largest - still looks relatively sturdy, far more so than most other major economies. But yields on other nations' debt are even lower. Yields on German and Japanese debt, for example, are negative. So foreign investors still get a smidgen of a return by buying Treasury notes.
All those factors have raised a host of questions: Are investors bracing for a global downturn? Will the United States remain an economic haven and benefit from the influx of capital? Does U.S. debt simply deliver a better return than foreign debt? Might inflation veer closer to zero?
“Gold Has Entered a New Phase” Says UBS
With gold prices having risen by 24% in dollar terms already this year, UBS analyst Joni Teves declared in a note to clients yesterday that “gold has entered a new phase”.
Here’s the key reasoning behind that forecast, from UBS’ Global Precious Metals Comment note according to Business Insider today:
Key drivers include: 1) low/negative real rates, 2) the view that the dollar has peaked against DM currencies, and 3) lingering macro risks. We expect the next leg to be driven by an extension of the trend of strategic portfolio allocation into gold from a diverse set of investors. This trend should now deepen, attracting more participants and encouraging those who have been hesitating to get more involved. Relatively orderly retracements, which have typically been shallow and brief, indicates strong buying interest. This suggests that gold’s floor is likely higher now given an even stronger fundamental argument for holding gold.
DYI
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