Treasuries Woo Buyers as Juicy Yields Offset Powell Warning

Beaten-down US Treasuries are proving irresistible to some investors even after Federal Reserve Chair Jerome Powell said he’s ready to raise interest rates again to choke off inflation.

Western Asset Management says bonds are set to outperform due to attractive yields, while JPMorgan Chase & Co. is keeping its bullish bets on fixed income despite Powell’s warning at Jackson Hole Friday. Even fresh Fed hikes won’t deliver bond losses steep enough to outweigh the income from the highest yields since 2007, the bulls argue.

“There may be considerable value in the bond market at current yields,” John Bellows, a fund manager at Western Asset in Pasadena, California, wrote in a client note. “Further declines in the inflation rate will eventually allow the Fed to return real interest rates to more normal levels.”

Bonds Have Bullish Bias Thanks to Elevated Yields

Benchmark 10-year Treasury yields were 2 basis points lower at 4.22% at 10:23 a.m. in London, having climbed to a 16-year high last week as markets grew less optimistic about a potential Fed pivot to cutting rates. Speaking at Jackson Hole, Powell acknowledged inflation had slowed thanks to tighter monetary policy but cautioned the process “still has a long way to go.”

Treasuries have handed investors a loss of 1.3% in August, heading for a fourth month of declines, according to a Bloomberg index.