Treasury Yields Only Attractive at 3.5%, JPMorgan’s Stealey Says

U.S., German and U.K. government bond yields are too low to be attractive given the outlook for improving global growth, according to JPMorgan Asset Management.

Treasury 10-year notes should yield 3.50 percent based on growth and inflation forecasts and the impact of the Federal Reserve’s asset-purchase program, instead of today’s 2.78 percent, JPMorgan executives said in a presentation in London. Benchmark German bund yields should be at 2.20 percent, versus 1.72 percent, while similar-maturity U.K. gilts should yield 3.30 percent instead of 2.82 percent, the company said.

“We still can’t get too excited about government bonds,” said Iain Stealey, a portfolio manager for JPMorgan’s international fixed-income group. “If gilt yields or Treasury yields wax and wane you can still lose a little bit of money owning government bonds. We don’t see there to be much opportunity there.”

The benchmark Treasury yield climbed to this year’s high of 3.01 percent on Sept. 6, from as low as 1.61 percent in May, as signs the world’s largest economy is gaining momentum fueled bets the Fed is moving toward reducing its $85 billion a month in asset purchases. The yield was last at 3.50 percent in April 2011.

Treasuries have lost investors 2.5 percent this year after returning 2 percent in 2012 and 10 percent in 2011, according to Bloomberg World Bond Indexes. Gilts dropped 3.6 percent and German securities fell 1.2 percent in 2013.

‘Low’ Yields

“People want fixed income that can potentially give them some sort of return and government bonds used to do that,” said Nick Gartside, international chief investment officer for fixed-income at the New York-based investment bank, which manages $1.5 trillion. “What we’re seeing from institutional investors is they want a source of fixed income that can potentially give them a return, which clearly with low government bond yields and low corporate bond yields is a stretch.”

JPMorgan bases its estimate for where the Treasury 10-year yield should be on a 2014 growth forecast of 2.6 percent and inflation prediction of 1.9 percent, and a reduction of 1 percentage point due to the impact of the Fed’s debt-purchase program known as quantitative easing.

To contact the reporter on this story: Lucy Meakin in London at

To contact the editor responsible for this story: Paul Dobson at

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