BMO：10年期美债收益率5%是买入触发点

Does it matter to you what significance is it for how this is funded, whether it's through the general account or whether it's through T Bill issuance? Does it matter? No. Is it significant? Not at all. And the reason why is the general account is funded by t bills. That's how they got up to a trillion dollars. It just didn't appear that way. So what is the general account used for? Most recently, it's been used for the government shutdowns.

That's what pays the employees, the government, federal employees, while the government shutdown. And once there's no more money left, that's when they actually go off of work. With part most likely a government shutdown, at least talk of it for 2027, this thing about using the treasury account is gonna be very short lived. It's gonna shorten that window, and then it has to be refunded up to a level that they set as a proper reserve at 700,000,000,000 to 1,000,000,000,000 by T Bill.

So, no, it has absolutely no effect or impact on our view on the market. So, Earl, you were looking for five on tens in '27. Have you got reason to bring that forward into '26? Yeah. Possibly. But it's not a 10 story. It's not an economic story. It's just a thirty year bond story. And the thing that's not being spoken about, this is not a US phenomenon in regards to thirty year yields going higher. Actually, US is the last major developed market to the game of steepening yield curves.

This is a global phenomenon. There's reasons behind it. So it's gonna be very hard to fight it. So what gets us to 5%? We think there's a higher chance of of thirties hitting six percent first than tens hitting 5% despite thirties being 75 basis points away from 6% at five twenty five now and tens being, call it, 35 basis points away from, from 5%. The reason why we think that, it's the pressure on the long end and the long duration risk.

There's a lot of mark to market risk with that. There's not as much with tens. We are big buyers of ten years at 5%, that five to five twenty five. We also believe that is the trigger for Fed act or treasury action and possibly action with the Fed in regards to market intervention. So we believe there'll be a big backup if we're buying, five year yield between five and five twenty five. Yeah. But you said that you would not necessarily be a buyer of thirty year yields at 6%.

Why? I wouldn't touch it at all. So let me go very quickly through bond math. A thirty year bond has, a duration of twenty years. What that means is if you get a move of 1%, so 05/25 to 06/25, you times that by 20, your duration, that's a 20% mark to market hit. The equivalent on ten year bonds on duration, let's call it six and a half on ten year bonds. So if you get a a move of 1%, and it's six and a half, you know, that's that's 6.5% or 650 basis point.

Your coupon pays you back for that within a year. So there's significantly less risk in owning ten years. I could go through the bond math all day long, but that's what I love about fixed income. That's what excites me about this this market. You get paid at par. You have a duration. It makes sense to buy ten year treasuries at 5% to five twenty five and corporate bonds on top of that. Earl, is this a long term debt problem, or is this a US problem?

We talked about the global issue, but I I would pose this question to you, and we've asked it many times in this show to different guests. Would you be more comfortable buying thirty year debt from, say, Meta or Microsoft or Amazon than the US government because there are these extra, yields, but also potentially revenue streams that are coming down the pike? That is a fantastic question. I'll try to keep the answer simple.

The reason why thirty year bonds and yield curves are steepening around the world, it's being led by Japan. Japan has steepness between basically their two year bonds and thirty year bonds of 300 basis points, let's call it. US, it's only about a 110. So we could go to 300. So why is Japan doing that? You know why? Because they've gone from they they basically used inflation to lower their debt load, and now they're actually running a primary surplus in Japan.

So steep yield curves are actually could be good for the economy because banks make more money. When banks make more money because they borrow short, lend long, they end up lending more to the economy, loaning out more. So it's actually growth productive. The final thing I I would say is too, the deregulation move in The US is real. Underlying growth is solid. So, yes, if we move tens to 5% or thirty year bonds to 6%, it's gonna be turbulent.

And it's like a plane, though. You go through turbulence. You could drop 500 and but you'll survive as long as the captain's telling you what's going on. And that's what we feel here that, you know what? We will survive. The turbulence will be rough, so you gotta fasten your seat belts, but there is significant opportunity around the corner. Again, that's why our team is built for this. We love being active managers, and we love being in fixed income, and we think there's significant opportunity not too far away.

So why are you trusting, cutting, and trimming corporate credit risk right now? Because the market doesn't like, the market doesn't like volatility. We think because valuations are so tight, the valuations will reset, not persistently, temporarily. We will be large buyers. So to your point, there's a saying we like saying, we we like the movie. We love this movie. We're just getting a seat closer to the exit right now based off all the people in in in credit and and risk on, but we're still risk on.

So what we have done, we've sold all our high yield in The US. We're still long high yield in Canada, and we bought all IG. And we bought all IG in that two to three year bucket because we know we'll be able to convert that to cash and buy high yield again when spreads go wider. I would say the sectors we're looking at are financials for the reasons that it's steeper yield curve. Financial, we like aerospace and defense.

Those are two sector and energy. We really like energy as well too, and those are the three sectors we're looking at for any pullbacks.