Investor Alert

April 17, 2017, 5:01 p.m. EDT

Treasurys steam past November support level, next station 1.5%, says Guggenheim bond guru

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By Sunny Oh

All bets seem to be off on how low Treasury yields can plummet, after the benchmark U.S. government bond managed to slip below 2.30%, a key support level that has back-stopped yields since November. But even as analysts are scratching their heads as they guess where Treasury yields will bottom out, one man appears to have the answer.

Scott Minerd, global chief investment officer for Guggenheim Partners, took to Twitter to predict that yields for 10-year Treasury notes /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%   could fall as low as 1.50% over the summer, a level that hasn’t been seen since last August. Treasury yields edged higher at 2.248% on Monday.

When will Treasury yields bottom out?

The combination of setbacks to President Donald Trump’s core economic reforms and a flight to safety driven by geopolitical flare-ups have helped mold Minerd’s bullish stance on bonds. Tensions on the Korean Peninsula spiked again Monday after U.S. Vice President Mike Pence said North Korea should beware of trying President Donald Trump’s “resolve” or the “strength of the armed forces of the United States.”

“D.C’s struggle to pass pro-growth policies and rising geopolitical/military risks increase chances of 1.5% or lower 10-year yields this summer,” Minerd said in a tweet.

His prediction comes as the range-bound trading, which has confined the Treasurys market since Trump’s election, appeared to end decisively on April 12. Flitting between 2.30% to 2.60%, two forces have tugged away at yields for U.S. government paper, neither getting the better of each other. Even as Federal Reserve officials stay committed to tightening rates at least twice more this year, the mounting difficulties Trump faces to keep up his promises of pro-growth policies have hobbled the reflation trade, benefiting haven investments at the expense of risky assets.

In the end, the specter of geopolitical turmoil in France, Syria, North Korea and China tipped the scales, drawing a rush of money into U.S. government bonds. Though analysts say yields should ultimately head up as the Fed increases its benchmark interest rate, investors have continued to plow into haven assets. Inflows into bonds exceeded inflows into stocks for the first time in 2017, data from EPFR Global shows.

A broader flight to safety has also driven up demand for less risky assets in commodities and currencies. Gold   rose to $1,285.90 per ounce while the dollar /zigman2/quotes/210561789/realtime/sampled USDJPY -0.0115%   traded at ¥108.46; both gold and the yen have returned back to their highest levels since Trump’s election victory in November. “Safe-haven traders are in vogue,” Minerd said.

Scott Minerd runs the $4.2 billion Guggenheim Total Return Bond Fund, which has outperformed more than 90% of its peers over the past five years, according to Morningstar.

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Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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