Treasury bulls should keep calm and carry on: HSBC

FAMED Treasury bull Steven Major is sticking to his guns. The sell-off in 10-year notes has run out of steam as the Federal Reserve's bid to downsize its US$4.5 trillion balance sheet looks unlikely to send yields soaring in the world's largest bond market.

"Investors want to believe yields will go up as there are signs that the QE policy has had its day," Mr Major, global head of fixed-income research at HSBC Holdings Plc, wrote in a report Wednesday, referring to quantitative easing. "But we think the stabilising ballast of central bank balance sheets will contain yields with the normalisation of Fed policy likely to be very gradual."

Treasuries in September suffered their worst losses in 10 months. Meanwhile, traders are holding the largest short position in over a decade as they weigh a a slew of headwinds: a potential supply jump from the Fed's plan to reinvest fewer maturing proceeds from its bond holdings back into the market, a looser fiscal stance and the potential successor to Fed chief Janet Yellen.