“We’re the last refuge in the global economy,” said Mitchell Stapley, the chief investment officer at Cincinnati- based ClearArc Capital, which manages $7 billion. “I don’t know that’s there’s much of a fear about our economy.”
Economists surveyed by Bloomberg say lower fuel prices will put more money in Americans’ pockets and boost U.S. growth by 3.15 percent this year, the fastest in a decade. Consumer confidence is already surging after more jobs were added last year than any time since 1999.
That hasn’t been enough to convince the bond market, which has been unparalleled in predicting the actual rate of price increases over the past decade.
Unprecedented Demand
Demand for Treasuries has soared this year, pushing down yields on the 10-year note to 1.84 percent through last week. Those on the 30-year bond slumped to 2.35 percent, the lowest since the U.S. started regularly issuing the securities in 1977.
Yields were 1.82 percent on 10-year notes and 2.43 percent on 30-year bonds today as of 8:29 a.m. New York time.
Based on prevailing yields, bond investors see cost-of- living increases staying below the Fed’s 2 percent annual target for at least 30 years. The inflation gauge used by the central bank to guide its monetary policy tumbled past the levels during the financial crisis to a 16-year low of 1.76 percent.
U.S. consumer prices actually fell from the previous month, plunging by the most since 2008.
“What we’re seeing is the U.S. cannot escape disinflationary pressure,” said Gemma Wright-Casparius, who manages $24.3 billion of inflation-linked securities at Vanguard Group Inc. in Valley Forge, Pennsylvania.
Bond Pessimism