This year will be “lousy” for Treasuries as the growing U.S. economy hurts bonds and supports stocks, according to Wells Capital Management Inc., a unit of the biggest U.S. bank by market value.
Ten-year yields may climb to 3.5 percent in 2012, James W. Paulsen, the Minneapolis-based chief investment strategist for Wells Capital, wrote in a report that the company distributed yesterday. The rate was 1.93 percent today as of 8:14 a.m. in London.
“This will prove a lousy year for high-quality bonds,” Paulsen wrote. “We expect the same renewed confidence which has been pushing the stock market higher this year to also begin pushing bond yields higher.”
Treasuries have handed investors a 0.5 percent loss this month as of yesterday, according to Bank of America Merrill Lynch indexes, as the U.S. economy shows signs of improvement. An increase in 10-year yields to 3.5 percent by Dec. 31 would bring a 9.2 percent loss to an investor who bought today, according to data compiled by Bloomberg.
The Conference Board’s consumer confidence index probably climbed to 63 this month, a Bloomberg News survey of economists showed the group’s report due today. It fell to 61.1 in January from 64.8 in December.
An industry report yesterday showed more Americans than forecast signed contracts to buy previously owned homes in January, indicating the industry that sparked the last recession is improving.
The U.S. jobless rate fell to 8.3 percent in January, the lowest level in almost three years, the Labor Department reported Feb. 3.
The Standard & Poor’s 500 Index gained 4.4 percent this month after accounting for reinvested dividends. The 2 percent Treasury due in February 2022 was little changed today in Asian trading.
Investors should “stay overweighted in equities,” said Wells Capital, which oversees $333 billion and is a unit of Wells Fargo & Co. in San Francisco.
“We also recommend underweighting ‘safe haven’ investments including domestic large caps, the U.S. dollar, high-quality bonds, dividend-emphasized indexes, and steady-eddy stock sectors like consumer staples, utilities, and healthcare,” according to the report.