Treasury market watchers believe shifting demographics are a key factor
set to keep long-term yields low, counteracting other forces that
recently pushed the 10-year yield near 3%, such as a strengthening
economy and increased government debt sales.
BNP Paribas bond analyst Timothy High contends the aging population is
the biggest factor influencing whether investors buy 30-year Treasury
bonds. Pension plans, which have seen their equity holdings rise in
value as the bull market in stocks runs into its ninth year, will want
to lock in their gains in super-safe long-term Treasurys, Mr. High said.
Demand for long-term debt is expected to be so persistent and strong
that BNP Paribas is forecasting the yield on 30-year Treasurys will fall
as much as 0.2 percentage point below their 10-year counterpart by
year-end. (At a yield of 3.08%, 30-year bonds currently yield about 0.15
percentage point more.).
Stuart Sparks, a bond analyst at Deutsche Bank, agrees with the strong
demand premise, but questions the shelf-life of pension funds’ appetite.
Mr. Sparks argues that a temporary tax benefit that was included in
December’s tax cuts—which expires on Sept. 15—is a key to explaining why
demand for the debt has been so strong.
That benefit is an opportunity for companies with underfunded pension plans to catch up on their obligations, analysts say.
Firms that contribute through mid-September of this year can receive
deductions based on the old 35% corporate tax rate, rather than the new
21% rate. A company that contributes $1 million to an underfunded
pension plan could have $350,000 in tax savings before the deadline, but
would have savings of just $210,000 after September.
Some companies, such as Verizon Communications Inc., have been
increasing the pace of their bond buying, moving forward purchases now
that would ordinarily have taken place later in the year, after the tax
deadline, Mr. Sparks said. While demographics play an important role in
shaping the absolute amount of demand, the Sept. 15 deadline has
accelerated purchases rather than adding to them, and demand should
decline noticeably later in the year.
The Nasdaq Composite opened 0.9% higher on Tuesday but reversed
throughout the day to close lower. Such reversals typically augur
short-term underperformance but medium-term outperformance, according to
Bespoke Investment Group.
The price of bitcoin traded above $8,000 for the first time in two months on Tuesday as the crypto-currency rebounded after a dismal start to the year.
On this day, the Panic of 1893 reached its low point. With nearly
one-quarter of the nation’s railroads heading into bankruptcy, the
directors of the NYSE nearly closed down the exchange.