Yields on shorter-maturity Treasuries fell to record lows after the Fed said Aug. 9 that it would hold its overnight lending rate between zero and 0.25 percent through 2013. The 10- year note yield reached 1.6714 percent on Sept. 23 after the central bank announced it would buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less.
With most forecasters suggesting the economic recovery would gather momentum this year, investors looked to corporate securities and other riskier assets rather than Treasuries. The median prediction of 71 economists in a Bloomberg News survey published Jan. 13 was for 3.1 percent growth in 2011. The median for 10-year yield in March 2012 was 4 percent, according to a separate Bloomberg survey.
Policy makers in the U.S. face an unemployment rate that has been at 8.8 percent or higher since April 2009, while European finance officials have grappled with mounting sovereign debt problems now affecting Greece, Portugal, Ireland, Spain and Italy since early 2010.
The International Monetary Fund on Sept. 20 cut its euro- region growth forecast for this year and next to 1.6 percent and 1.1 percent, respectively. The Washington-based IMF had previously forecast the economy to expand 2 percent this year and 1.7 percent in 2012. The European Central Bank forecasts 2012 growth of about 1.3 percent.
The worsening global economic outlook caught many investors with too few bonds.
"Being so negative on Treasuries has been a very painful trade," Mark MacQueen, who oversees bond portfolios at Austin, Texas-based Sage Advisory Services Ltd., which manages $9.5 billion, said in a Sept. 27 telephone interview. "In uncertain times like these that is exactly the opposite trade to have on, and a lot of people were hurt."