Since slumping below 40 cents in July, when Greece was at the brink of financial ruin, the notes have soared and now trade at about 92 cents. And while average borrowing costs are hardly low by standards of developed nations, those for Greece have tumbled from a peak of 22 percent this year to 8 percent today, data compiled by Bloomberg show.
“They’ve gotten the Greece drama behind them, Draghi is running the appropriate and effective policy and so there are opportunities in the European periphery bonds,” said Richard Clarida, the global strategic adviser at Pimco.
That contrasts with the firm’s “underweight” on Treasuries. Particularly for shorter-dated debt, the bearishness reflects the prevailing view that Draghi will have to step up the ECB’s stimulus to combat weakening growth and inflation, at a time a stronger U.S. economy pushes Fed Chair Janet Yellen to tighten policy, said Gianluca Salford, JPMorgan’s European rates strategist.
“The message is very, very clear,” he said.
According to the median forecast in a Bloomberg survey, yields on 10-year Treasuries will rise to 2.75 percent by the end of 2016 from about 2.22 percent now. If that happens, investors will lose about 1.9 percent.
Since the late 1970s, U.S. government bonds have posted annual losses just four times -- in 1994, 1999, 2009 and 2013, data compiled by Bank of America Corp. show.
New Normal
Still, Treasuries have been a far better investment than most euro-denominated bonds for investors who chose not to hedge their currency risk.
For Japanese yen-based bond buyers, Treasuries have returned 2.6 percent this year, while losing 7.2 percent on euro-sovereign debt, data compiled by Bloomberg show. Japanese investors have been buying U.S. bonds and paring euro-area debt, with the biggest sales coming at the expense of German bunds.
Even Pimco’s Clarida says that regardless of where you invest, returns will be meager.