Treasury 10-year notes are posting the biggest gain to start the year in more than a quarter-century as investors snap up the highest yields among Group of Seven nations as central banks worldwide seek to avoid deflation.

U.S. debt rallied this month as the Federal Reserve took note of international economic weakness and repeated a pledge to stay “patient” on raising interest rates. Bond-buying plans by the European Central Bank led global efforts to spark inflation while driving down sovereign yields. Treasuries gained even as the Fed upgraded its assessment of the economy before report next week forecast to show another month of 200,000-plus U.S. jobs gains.

“The combination of slowing global growth and the signs of a slowdown in domestic economic growth caught the market off guard,” said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “You’re not going to see long-end yields move higher from here.”

The benchmark 10-year note dropped 53 basis points this month to 1.64 percent in New York, the biggest decline in any January since 1988, according to Bloomberg Bond Trader prices. The 30-year bond yield reached an all-time low 2.22 percent Friday.

Market Positions

Hedge-fund managers and other large speculators reduced positions that profit from a decline in 10-year note to the least since November, U.S. Commodity Futures Trading Commission data showed. Net-short positions totaled 107,892 contracts as of Jan. 27.

While U.S. 10-year yields have plunged, they stand about 76 basis points higher than the average for their G-7 peers. Treasuries posted a fourth monthly gain as global investors sought U.S. yields that are higher than 18 developed nations.

“The flows are searching for any source of return,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “Treasuries stick out not because they are attractive, but because they are the least unappealing.”

Overseas demand was also reflected in auctions this week as the U.S. sold $90 billion in notes.

Debt Auctions