(Bloomberg News) Treasuries were headed for their steepest quarterly decline since the last three months of 2010 while corporate bonds surged as the world's largest economy showed signs of improvement.
U.S. government securities lost 1 percent since Dec. 31 as of yesterday, according to Bank of America Merrill Lynch indexes. An index of investment-grade and high-yield corporate bonds returned 3.2 percent, the most since July to September 2010. Treasuries also lagged behind German and Japanese debt during the first quarter.
"It will be difficult for rates to sell off in a sustained fashion any time soon unless we get much higher and sustained growth rates, and by that I mean 3 percent and above," Michael Pond, co-head of interest-rate strategy in New York at Barclays Plc, one of 21 primary dealers that trade directly with the Federal Reserve.
Benchmark 10-year note yields were little changed at 2.16 percent at 1:03 p.m. New York time, according to Bloomberg Bond Trader prices. The 2 percent securities maturing in February 2022 traded at 98 19/32.
The yields have climbed 28 basis points this quarter, the most in more than a year. They reached 2.40 percent on March 20, the highest level since Oct. 28, after touching a record low 1.67 percent in September. The average over the past decade is 3.86 percent.
Real Yield
The increase in yields this year has brought them closer to the annual rate of inflation. Ten-year notes have a so-called real yield of minus 71 basis points, compared with minus 152 basis points at the end of 2011.
Ten-year yields will increase to 2.53 percent by year-end, according to the average forecast in a Bloomberg News survey of financial companies, with the most recent projections given the heaviest weightings.
Consumer spending in the U.S. rose in February by the most in seven months, with purchases climbing 0.8 percent, Commerce Department figures showed today. The median estimate of economists surveyed by Bloomberg News called for a 0.6 percent increase. Incomes advanced less than projected, sending the saving rate down to the lowest level in more than two years.
Business activity in the U.S. held near a 10-month high in March, the Institute for Supply Management-Chicago Inc.'s gauge showed. The barometer declined to 62.2 from 64 in February, which was the highest since April 2011. Readings greater than 50 signal growth.