Why the US Treasury 20-year point is attractive - Citi

Treasury yields have surged as higher oil prices reignite inflation fears, with resilient U.S. growth, heavy debt issuance and mounting fiscal concerns adding fuel to the selloff.

However, according to Citi, “for investors who can withstand further volatility, the 20-year point continues to offer an attractive risk-reward, in our view.”

“Our conviction rests on a strengthening Treasury ‘put’ should yields move north of 5.3%,” said Jason Williams, rates strategist at Citi.

The so-called "U.S. Treasury put" refers to the belief that policymakers will act to curb sharp rises in U.S. government bond yields, providing a safety net for the bond market.

“We think shorts will struggle to test far north of 5.3% unless (Fed’s) Chair (Kevin) Warsh muddies the waters" at this week’s press conference, he adds.

The Fed is expected to hike rates, and Citi says that the Fed Chair doesn’t need to sound hawkish.

“Beyond Treasury, we have argued that corporate defined benefit plans provide yet another backstop above 5.3%,” Williams argues.

When Treasury yields rise, bonds become more attractive and pension plans can lock in higher returns that help match their future liabilities.