Amundi is scanning global fixed income for openings after the latest rout, and it has started buying two-year US Treasuries to guard against a slowdown driven by elevated energy costs. Nicolas Dahan, a senior portfolio manager covering global bonds and currencies, said rising yields and higher oil are now a real threat to an otherwise sturdy US economy. "A growth slowdown due to higher oil prices is becoming a non-electable risk," he said Friday. "Above 4.50%, we think that the US two-year can become a hedge to that risk, and that's why we are starting to buy it to reduce our short-front end on the US curve."
Bets on additional Fed hikes have mounted, lifting the US two-year to more than 4.50% last week, a threshold last reached in 2024. Because that maturity reacts quickest to policy changes, if growth cools and the Fed has to reconsider its tightening path, two-year yields would typically drop. Prior to this, Amundi was positioned net short in US, European, and UK fixed income, while it preferred emerging markets offering strong real yields and growth.
Now, with yields where they are, Dahan sees room to selectively add. "We are slowly coming back to being long duration," he said. "We are coming back to developed markets slowly and steadily."
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Global bonds have come under strain as Middle East tensions pushed Brent crude to above $100 a barrel, with hefty debt burdens remaining a key concern. In the US, the 10-year Treasury - a reference point for borrowing worldwide - is sitting just under the big, round 5% threshold, a mark it has only briefly touched since 2007. It was up two basis points on Monday at 4.99%, after a 19-basis-point leap last week.
Rising yields filter straight into the real world, increasing borrowing costs for companies and governments, and pushing up US mortgage rates, which are at their highest in more than a year. That ups the pressure on Federal Reserve Chairman Kevin Warsh ahead of Wednesday's meeting, with some investors saying the Fed has fallen behind the curve as inflation stays above target. With an oil supply shock, shifting expectations for central banks and what Dahan called "capitulation on bond markets," the backdrop could flip fast. "As much as we stayed away from the core markets we now have an opportunity - the same type of opportunity we had a few years back where, within the hiking cycle, we saw many central banks pivot," he said.
This is a real-time look at how a $2.8 trillion player is positioning for an oil-driven growth scare: shifting from short duration to adding two-year Treasuries and cautiously re-entering developed markets. If yields stay elevated, everyday borrowing costs rise and housing stays expensive, which can ripple through anything in your portfolio that's sensitive to rates. If growth wobbles and policy pivots, shorter Treasuries tend to react first - exactly where Amundi is setting its hedge.
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