“The market has overreacted to the tapering signals from a Fed that is still on hold for some time, and inflation fundamentals globally and domestically are still weak,” Michael Pond, head of global inflation-linked research in New York at Barclays Plc, said in a phone interview on May 15. Treasuries are “attractive on a relative basis,” he said.

Gross domestic product may grow by 2 percent in 2013, down from 2.2 percent last year and the 2.7 percent posted in 2006 before recession and worst financial crisis since the Great depression, according to the median estimate of more than 80 economists surveyed by Bloomberg.

Growth globally is also depressed, with Japan forecast to expand 1.4 percent the euro region to contract 0.5 percent, according to separate Bloomberg surveys of economists.

Auction Demand

Evidence of bond demand can also be seen in the government’s debt auctions. The Treasury’s $777 billion in bond sales this year have attracted an average of $3 in orders per dollar sold, making this the third-strongest year ever and compared with the record $3.15 in 2012, according to data released by the Treasury and compiled by Bloomberg.

“It doesn’t look like a great big bond market selloff is coming anytime soon,” Jack McIntyre, a money manager who oversees $44.5 billion for Brandywine Global Investment Management LLC in Philadelphia, said in a May 16 telephone interview. “At the end of the day growth is still mixed, inflation is fairly tame and the Fed’s foot is still on the easing pedal.”

Treasury returns are enhanced by the slowdown in inflation. The consumer price index in the U.S. fell 0.4 percent in April following a 0.2 percent decrease in March, the first back-to- back declines since 2008, according to the Labor Department.

Falling commodity prices are weighing on inflation. The Standard & Poor’s GSCI Total Return Index of 24 raw materials has declined 8.6 percent from this year’s peak in February.

For international investors, a rising dollar also has the potential to boost returns from Treasuries. For yen based investors, this year’s losses in U.S. bonds would translate into a gain of 18.7 percent after currency conversions.

IntercontinentalExchange Inc.’s U.S. Dollar Index rose to 84.371 on May 17, the highest level since July 2010.