Zero-Coupon Bond Pile Balloons to Near Half-a-Trillion Dollars

According to strategists at Barclays, the amount of zero-coupon Treasury bonds outstanding reached a new high of nearly $500 billion in May. This increase of $4.3 billion was higher than usual for the season, bouncing back from April. The surge in long-term bond funds and softer economic data contributed to the rally in Treasury yields. Additionally, there was an uptick in “stripping activity” and a slight increase in pension funding due to gains in risk assets.
Investors are showing increased interest in Treasury Strips, indicating that they find the yield on long-term debt attractive. In May, US Treasuries experienced a 1.5% gain, while Treasuries maturing in 10 years or more saw a 2.9% gain, according to Bloomberg indices. Yields had risen in May due to concerns of a slowing economy and easing inflation, but hopes for a sustained bond rally were dampened by unexpectedly strong US labor market data. This has led to speculation that the Federal Reserve may maintain higher interest rates for a longer period. However, 30-year Treasury yields currently stand at around 4.6%, down from the peak of 4.85% reached on April 25th.
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