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By Morningstar | 06-21-2017 04:00 PM

Why Investors Keep Buying US Treasury Bonds

The 10 year Treasury has rallied from a yield of around 2.6% in March to less than 2.2% today – reflecting the strong demand for the asset class

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Mark Preskett: The US government bond market is by far the most important for fixed income investors. Almost every bond is priced in some way against US Treasuries and their movements are closely watched by investors.

What we have seen since March of this year has been real demand for US Treasuries despite two interest rate hikes by the Federal Reserve in 2017, the latest one last week.

The 10 year Treasury has rallied from a yield of around 2.6% in March to less than 2.2% today – reflecting the strong demand for the asset class.

Clearly investors remain worried about subdued inflation and growth in the US, and are still nervous of recession, despite the Federal Reserve moving to slow the economy with its rate hikes.

Closer to home in the UK, the equivalent 10 year government bond yields around 1% and there are no expectations of any rate hikes in the foreseeable future.

Although inflation sits above 2% target, at 2.9%, it will be difficult for the Bank of England to raise rates in any meaningful way so as not to undermine the already fragile economic recovery.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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