Treasuries are having their best start to a year since 2010 as investors from Jeffrey Gundlach to Goldman Sachs Group Inc. say the Federal Reserve will keep its benchmark interest rate at almost zero into 2016.
U.S. government securities have returned 0.7 percent in 2014 through yesterday, the most for the first two weeks in four years, according to Bank of America Merrill Lynch indexes. Treasuries fell after a report showed a New York manufacturing index increased this month more than forecast. Fed officials Charles Evans and Dennis Lockhart are scheduled to speak.
“Investors who late last year anticipated stronger U.S. data were forced to buy Treasuries this year to cover short positions as growth appears to be losing momentum,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh, referring to bets that an asset price will fall. “While we expect the Fed to continue with its tapering program, it’s unlikely that interest rates will rise any time soon.”
The benchmark 10-year note yield rose one basis point, or 0.01 percentage point, to 2.88 percent at 8:33 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 2.75 percent security due November 2023 was 98 28/32. The yield will be 3.43 percent by year-end, according to the weighted average estimate of more than 60 forecasters surveyed by Bloomberg.
Treasuries surged on Jan. 10 after a government report showed the world’s biggest economy added 74,000 jobs in December, versus the gain of 197,000 projected by a Bloomberg News survey of economists.
U.S. government securities are rallying after debt due in 10 years and longer tumbled 13 percent 2013, the biggest loss among 144 sovereign bond indexes globally compiled by Bloomberg and the European Federation of Financial Analysts Societies.
Gundlach, whose DoubleLine Total Return Bond Fund beat 81 percent of its competitors in the past year with a 0.5 percent gain, said short-term interest rates will stay low into 2016. Gundlach, who is based in Los Angeles, said he’s not so sure that Treasury yields are headed higher, speaking yesterday in a webcast.
Jan Hatzius, chief economist at Goldman Sachs, said yesterday there probably won’t be an interest-rate increase until early 2016. The Fed will probably conclude its bond-purchase program in late 2014, he said at an event in Frankfurt.
The Goldman Sachs Strategic Income Fund gained 4.4 percent over the past year, beating 92 percent of its peers, according to data compiled by Bloomberg. The fund is run by Jonathan Beinner and Michael Swell in New York, the data show.
Evans, who was among officials who voted in favor of reducing stimulus at the Fed’s Dec. 18 meeting, said last month he wanted to see more signs that inflation would accelerate and job-market gains would continue before changing policy. Lockhart said two days ago that weak payroll growth last month should not discourage policy makers from reducing monthly bond purchases as long as the economy continues to strengthen.
The Federal Open Market Committee last month said it will continue to keep interest rates exceptionally low “well past” a decline in the jobless rate below 6.5 percent.
The Fed has kept its target for overnight loans between banks in a range of zero to 0.25 percent for five years. The chance of an increase by January 2015 are about 23 percent, according to futures contracts.
This year’s rally in Treasuries was interrupted yesterday when Philadelphia Fed President Charles Plosser said the economy was on “firmer footing” and the central bank’s decision to cut debt purchases was a step in the right direction. Plosser votes on monetary policy this year.
Policy makers in December announced plans to cut their monthly bond purchases to $75 billion a month from $85 billion starting in January.
Reports today will show manufacturing in the New York region climbed to a four-month high in January, while producer prices increased in December, based on surveys of economists by Bloomberg News. The Fed is scheduled to publish its Beige Book business survey.
The World Bank raised its global growth forecasts, saying the easing of austerity policies in advanced economies supports their recovery, improving the outlook for exports from developing nations.
The Washington-based lender sees the world economy expanding 3.2 percent this year, compared with a June projection of 3 percent. U.S. growth will be 2.8 percent, the bank said in its Global Economic Prospects report published twice a year.