Bonds worldwide are off to their best start since at least 1997, according to index data compiled by Bank of America Corp. Yields on roughly $10 trillion of sovereign debt have fallen below zero. And Treasuries have returned 5.3 percent, the most on a year-to-date basis since in 2010.
At least one major bond shop says the bull market still has room to run. Morgan Stanley, which predicted this year’s gains in Treasuries, sees 10-year yields falling to 1 percent by the first quarter of 2017 as growth disappoints.
Unrepentant Bull
“We expect the ‘year of the bull’ to continue for Treasuries,” Matthew Hornbach, the firm’s head of global interest-rate strategy, said in a report.
Although central-bank bond buying in Europe and Japan is helping to put a lid on yields in the U.S., Goldman Sachs Group Inc. still sees a stronger U.S. economy convincing the Fed to raise rates before year-end. That will ultimately help damp foreign demand for Treasuries. The bank, which puts fair value for the 10-year note at 2.5 percent based on its so-called Sudoku model, sees yields rising to 2 percent by the end of 2016.
“Treasuries are not a no-brainer for global investors anymore,” said Zach Pandl, economist at Goldman. “The return prospects for Treasuries are very poor at current rate levels.”