With the specter of a Federal Reserve interest-rate increase looming over global financial markets all year, the asset class most susceptible to rising rates -- Treasurys -- has topped other U.S. investments through the first three quarters of 2015.
The slow economic growth and financial-market volatility that have caused the Fed to delay liftoff have benefited U.S. government bonds as other asset classes stumbled. With plunging commodity prices pushing inflation expectations to the lowest since 2009, Treasurys have been a haven as global equities slumped and bond yields in Germany and Japan touched all-time lows.
“There’s a lot of anxiety out there,” said Robert Tipp, chief investment strategist in Newark, New Jersey for Prudential Financial’s fixed income division, which oversees $533 billion. “We’ve dealt with crises in Greece, stress in emerging-market countries and heavy corporate issuance, and all the while the Fed’s in the background holding the threat of rate hikes over the market.”
The 1.9 percent return for U.S. government securities this year beats the 5.3 percent decline in the Standard & Poor’s 500 stock index, the 0.1 percent dip in corporate bonds and a 2.1 percent slide in high-yield debt, not to mention the 14.1 percent plunge in the Standard & Poor’s Goldman Sachs Commodity Index.
“Anything positive is relatively good,” said Marc Fovinci, who helps invest $3.2 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “Treasuries, by the process of elimination, have been the winner.”
Treasuries started the quarter on a down note Thursday, pushing yields up from the lowest level in more than five weeks amid gains in global stocks and a Chinese report showing stability in factory production. Benchmark 10-year note yields rose one basis point, or 0.01 percentage point, to 2.04 percent as of 7:35 a.m. New York time, based on Bloomberg Bond Trader data.
Slowing Growth
China’s surprise devaluation of its currency in August sparked a global equities rout as volatility surged across financial markets. Speculation that China’s economy will fall below the 7 percent expansion pace targeted by its government has fueled concern that global growth is declining, putting further pressure on commodities. Lower prices for oil have helped curb U.S. inflation expectations, which fell below a 1 percent pace for the next five years for the first time since 2009.
Even U.S. corporate bonds, which often do well when Treasuries gain, have slumped this year. Companies have rushed to borrow in the U.S. before the Fed moves to raise rates for the first time since 2006. With debt sales up 14.6 percent from the same period last year to a record $1.02 trillion, the deluge has helped drive down prices.
At the same time, the rout in crude oil has led to losses in the high-yield market, where many energy companies raise money.