Investors Advised to Act Sooner Rather than Later for Higher Rates on Longer-Term Treasurys

According to the Wells Fargo Investment Institute, investors who are looking to secure high rates on longer-term Treasurys should consider taking action sooner rather than later. Currently, the 10-year Treasury is yielding around 4.2%. In a recent note, Scott Wren, the senior global market strategist at Wells Fargo, explained that as the economy slows and inflation eases from pandemic levels, and with the Federal Reserve keeping interest rates higher for an extended period, longer-term rates are approaching a ceiling. Wren believes that yields in the range of 4% to 4.5% on 10-year Treasurys could present a fixed-income opportunity for investors who have been seeking higher yields over the past 15 years.

Factors Influencing Higher Yields on Longer-Term Treasurys

Wren noted that longer-dated yields have significantly increased since mid-July. This is partly due to the U.S. Treasury raising its quarterly funding requirement, increasing the amount of government debt it plans to sell by approximately $267 billion, reaching a total of $1 trillion in government debt. Additionally, Fitch’s downgrade of U.S. debt on August 1 also played a role in pushing yields higher. Wren explained that it is logical for investors to demand a higher yield when purchasing government debt in light of these announcements.

Wells Fargo’s Fixed-Income Strategy

Wells Fargo adopts a barbell approach to its fixed-income strategy. Alongside investing in 10-year Treasurys, the bank has adjusted its equities allocation and allocated those funds to short-term Treasurys. By doing so, Wells Fargo is able to secure yields of over 5% in maturities ranging from 3 to 12 months.