Treasuries are losing their luster as a portfolio hedge, according to Citigroup Inc.'s top Australia banker Mark Woodruff. Speaking at the Citi Australia & New Zealand Investment Conference in Sydney, Woodruff noted that US 10-year government bonds yielding 5% would typically counterbalance equity allocations, but current market conditions have weakened demand. Persistent inflation, rising neutral rates, and increasing supply have weakened their appeal.
In September, the US 10-year yield hit its highest level since 2007 during a global bond selloff tied to elevated energy costs. Woodruff emphasized that central banks face higher neutral rates and stubborn inflation, stressing the need to ensure inflation expectations aren't embedded. While demand for hedging products exists, the bond market faces structural pressures making it a less effective hedge than in previous cycles.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing