LIVE MARKETS-Too much uncertainty to be positive on Treasuries

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TOO MUCH UNCERTAINTY TO BE POSITIVE ON TREASURIES

U.S. Treasuries hit their highest yield in over a year earlier this month - one component of the "Trump Trade" - but even at such levels, some investors are nervous about bulking up on them.

"There is too much uncertainty to be positive," said Nicolas Jullien, global head of fixed income at Candriam, in a note circulated Monday.

"Valuation is now a clearly a positive within our framework. That said, the growth, inflation and ultimately monetary outlook cannot currently justify a positive outlook."

The benchmark 10-year yield briefly rose above 4.8% US10YT=RR in mid Jan in the run-up to Trump's inauguration, as investors bet his proposals for tariffs and tax cuts would drive growth and inflation and cause the Federal Reserve to be even more cautious on rate cuts.

Some are also concerned about the scale of the U.S. deficit.

Treasuries have since recovered somewhat, and the 10-year yield was last 4.5%, falling particularly on Monday as part of the global risk-off tone. US/

But Jullien said he was still concerned about where the U.S. economy would go from here.

"We now face a situation in which there is arguably a 'base case' for modest reflation and a 'risk case' for a strong uptick in inflation, depending on which policies President Trump actually intends to implement."

(Alun John)

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