Treasurys are the world’s second- worst-performing bonds as investors from Jim Rogers to Wells Capital Management Inc. warn there are probably further losses ahead.
U.S. government bonds due in 10 years and longer have handed investors a 6.5 percent loss in the past six months, based on indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies. Only Sweden’s long- term bonds, fell more among the 144 indexes in local currency terms, dropping 10 percent. Signs of improvement in the U.S. economy are fueling speculation the Federal Reserve will curb its debt purchases this year.
“I’m short long-term government bonds,” betting the securities will fall, Jim Rogers, the investor and author of the book “Hot Commodities,” said yesterday on Bloomberg Radio. “I plan to short more. That bull market, that’s a bubble.”
Benchmark 10-year yields were little changed today at 1.97 percent as of 9:46 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent note maturing in November 2022 was 96 31/32.
The rate will increase to 2.25 percent by year-end, according to a Bloomberg survey of financial companies, with the most recent projections given the heaviest weightings.
Japan’s benchmark 10-year yield fell 1 1/2 basis points to 0.76 percent. The 2-year rate declined 1 1/2 basis points to 0.03 percent, the lowest level since September 2002.
“At best, bond yields will move sideways in the next several years but it would not be surprising if yields trend higher,” James W. Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, wrote in a report yesterday. “While bonds have provided very competitive returns relative to the stock market since 1980, this era has probably ended.”
The Fed said Jan. 30 it is committed to buying about $85 billion of government and mortgage securities a month as long as the jobless rate stays above 6.5 percent and inflation is below 2.5 percent. Unemployment rose to 7.9 percent in January and consumer-price gains remain below the central bank’s target. The U.S. economy contracted 0.1 percent in the fourth quarter.
Fed Bank of Kansas City President Esther George voted against the decision, saying it risks increasing inflation expectations. Minutes of the Fed’s Dec. 11-12 gathering showed members divided between a mid- or end-of-year finish to bond purchases.