The selloff that hit investors with record-setting losses during the first 10 months of the year also brought a stark end to an era of rock-bottom interest payments on Treasuries by driving yields to the highest in over a decade.
Those coupon payments, now over 4% on recently issued 2-year and 10-year notes, have become large enough to lure in buyers and are seen as providing a buffer against future price declines. The resilience of the economy is also strengthening the case: If the Fed needs to tighten monetary policy so much that it sets off a recession, Treasuries will likely rally as investors seek somewhere to hide.
“The coupon is becoming a more meaningful source of return now,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. “The bond math is turning into a tailwind.”
The bond market gained support Wednesday when Fed Chair Jerome Powell indicated that the central bank its likely to slow the pace of its rate hikes at the December 13-14 meeting.
The comments added fuel to a rally that began earlier in November after the rate of consumer-price inflation slowed.