(Bloomberg News) Treasuries snapped a three-day gain on speculation the rally that pushed U.S. government securities to their best year since 2008 will give way to losses in 2012 as the economy improves.

America's debt returned 9.6 percent in 2011 as of yesterday, according to Bank of America Merrill Lynch data, even after Standard & Poor's cut the nation's AAA rating on Aug. 5. German bunds also gained 9.6 percent, Japanese sovereign securities advanced 2.1 percent and U.S. corporate debt rallied 6.6 percent. All of these bond markets are poised to beat stocks, commodities and the dollar for the year.

"There's not much room for yields to decrease," said Takuya Yamamoto, an investor at Diam Co. in Tokyo, which manages the equivalent of $127.2 billion and is an arm of Dai-ichi Life Insurance Company Ltd., Japan's second-biggest life insurer. "The economy in the U.S. is better than in other countries."

Ten-year yields rose one basis point to 1.91 percent as of 1:30 p.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security maturing in November 2021 declined 3/32, or 94 cents per $1,000 face amount, to 100 25/32.

Japan's 10-year yield was little changed at 0.985 percent, falling from 1.11 percent at the end of 2010.

Treasuries are scheduled to close at 2 p.m. in New York and remain shut on Jan. 2 in observance of New Year's Eve and New Year's Day, according the Securities Industry and Financial Markets Association.

Flight to Safety

U.S. benchmark 10-year yields tumbled to a record 1.67 percent on Sept. 23 as investors sought the relative safety of U.S. debt. Two years of summits have failed to contain a European debt crisis that has led to bailouts of Greece, Ireland and Portugal and now threatens Italy and Spain.

S&P downgraded the U.S. rating for the first time, criticizing lawmakers for failing to cut spending enough to reduce budget deficits that exceed $1 trillion a year.

"It was a really unusual year, one of the best," said Kazuaki Oh'e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada's fifth-largest lender. "Nobody believed Treasuries would be bought under 2 percent. Investors were forced to buy because of the European debt situation."

A four-week bill sale on Dec. 20 drew bids for a record 9.07 times the amount offered even though the securities yield negative 0.01 percent.

Pimco's Bet

Bill Gross, who runs the world's biggest bond mutual fund at Pacific Investment Management Co., was among those caught off guard by the rally.

Gross was betting against U.S. government debt earlier in the year in the $241 billion Total Return Fund. Treasury debt comprised 23 percent of holdings as of Nov. 30, according to the Newport Beach, California-based company's website.

The fund has returned 3.7 percent in 2011, underperforming 70 percent of its competitors, according to data compiled by Bloomberg.

The median estimate of 70 economists and strategists surveyed by Bloomberg in early January was for 10-year yields to end this year at 3.75 percent.

U.S. government securities were some of the best assets to own in 2011.

Treasury Inflation Protected Securities returned 14 percent, the most since 2002, the Bank of America figures show. An index of bonds around the world rallied 5.8 percent, based on the data.

The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 1.92 percentage points. The average over the past decade is 2.13 percentage points.

Comparative Returns

Stocks have lost 7.2 percent this year after accounting for reinvested dividends, based on the MSCI All Country World Index.

The Dollar Index tracking the U.S. currency against six foreign-exchange counterparts rose 1.9 percent in 2011.

The Standard & Poor's GSCI Total Return Index of commodities was little changed.

Growth in the world's biggest economy will quicken to 2.1 percent in 2012 from 1.8 percent in 2011, a Bloomberg survey of banks and securities companies shows. The pace of expansion will be 8.5 percent in China, 1.66 percent in Japan and 0.45 percent in Germany, based on the responses.

U.S. 10-year rates will advance to 2.67 percent by the end of 2012, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. An investor who buys the debt today and sells at the end of next year would face a 4 percent loss should the forecast prove accurate, according to data compiled by Bloomberg.