Conversely, one would assume that with the substantial rally in risk assets that we have seen so far this year, US Treasury Securities would sell off significantly. But market participants have not fully bought into the risk rally, and with fundamental economic data languishing, US Treasury yields held up even as risk assets performed exceptionally well.
As we have seen trade tensions ratchet up in recent weeks, US Treasury Securities are again back in the spotlight.
While we believe that the medium-term impact on both of the world’s leading economies is relatively small and manageable, the risk of short-term disruption and a hit to business and consumer confidence (and possible USD boost) could be a major setback.
With this uncertain backdrop, we continue to hold US Treasury Securities for both defensiveness and diversification, and believe that there is a strong argument for the asset remaining resilient and range-bound for the foreseeable future.
Eugene Philalithis is a portfolio manager, multi-asset at Fidelity International
