Analysts at Ned Davis Research have downgraded the U.S. to a Marketweight 54% from an Overweight 58% in a note Tuesday. The firm noted that the flight to safety trade last week temporarily helped U.S. bonds outperform. However, they feel that fundamentals and technicals continue to work against U.S. debt relative to other economies.
“The U.S. economy remains firm, inflation is sticky, and the Fed keeps pushing back when it will cut rates,” state analysts. They add: “A mild overweight for the U.S. market in a global allocation was inconsistent with our neutral view on U.S. duration. Additionally, the Global Fixed Income Allocation Model is showing a possible increased allocation to Europe at its next monthly update.”
Furthermore, the investment research firm highlights that the spread between the U.S. 10-year Treasury and the 10-year bund topped 200 bp for the first time since October, climbing as high as 219 bp, the most since November 2019. “Such spread widening was not just evident against European yields. The spread with Canada hit its widest level since at least 1989 when the daily data began,” says Ned Davis. “On a relative currency hedged basis, the U.S. has broken down against Europe, testing its all-time lows of 2019. The U.S. remains in a downtrend versus Japan, and is struggling against the U.K.”
