The Federal Reserve may have understated the staying power of negative effects on U.S. economic growth, according to William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc.
Royal Bank of Scotland Group Plc.’s William O’Donnell, head of the lender’s U.S. treasury strategy, said he sees a 60 percent chance that the Federal Reserve will begin cutting its $85 billion monetary stimulus plan in March.
Overseas creditors such as China and Japan enabled the U.S. to spend its way out of the recession as they gobbled up 80 percent of the nation’s Treasuries. Now, their holdings are dropping toward the lowest level in a decade, while homegrown investors have picked up the slack.
Treasuries maturing in 3 1/2 to 4 years represent the “sweet spot” in the government bond market because they offer relatively attractive yields and greater protection than longer-maturity debt as yields fluctuate, according to RBS Securities Inc.’s William O’Donnell .
Investors should heed the views of the Federal Reserve on the state of the economy and the need for more debt purchases because “so far they have been right,” according to William O’Donnell of Royal Bank of Scotland Plc.
Treasuries are poised to fall after the 2-year note yield dropped last week to a record low and the 10-year yield slid to the weakest level in 19 months, according to Royal Bank of Scotland Group Plc, citing technical analysis.