HONG KONG -- A flood of more U.S. government bond issuance after a record amount this week will likely push up yields to 4.5 percent within six months, according to the chief investment officer of global asset allocation for State Street Global Advisors.
U.S. Treasuries have been under pressure as investors look for higher returns in riskier assets and anticipate the implications of more new supply in the market. The yield on the benchmark 10-year note hit an 8-month high of 4 percent two weeks ago, but has eased back to 3.64 percent since then.
"I think we'll see 4 and a half in the next 6 to 12 months in U.S. governemnt bonds, because I think we will dig our way out of this complete panic and normalise and see positive economic growth at the end of this year," Alistair Lowe told Reuters on Wednesday, adding the firm had been underweight government bonds since November 2008.
Lowe, who also oversees currency portfolios, said he expected the U.S. dollar to continue declining as investors shift out of ultra safe bets into other currencies that would benefit from higher commodity prices, such as the Australian dollar and the Canadian dollar.
"We still think the U.S. dollar will continue to depreciate against most developed market currencies. Why? I think we will continue to see risk aversion gradually decline," he said.
However, Lowe played down the risk of the U.S. dollar losing its premier reserve currency status, saying central banks will likely diversify their currency reserves but that would not mean supplanting the dollar with any other unit.
State Street Global Advisors is the investment arm of State Street Corp (STT.N: Quote, Profile, Research, Stock Buzz). It had $1.4 trillion in assets under management as of March 2009.
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