Long bonds, last year’s superstar of the Treasury market, are punishing investors in 2015, sending 30-year yields to the highest since November.
Goldman Sachs Group Inc. is warning they’re a “poor investment.” Meanwhile, Pacific Investment Management Co.’s Total Return Fund added to its holdings of U.S. government and related securities in April.
Thirty-year bonds slumped 8 percent in the past two weeks, leaving investors with a loss of 4.8 percent since Dec. 31, based on Bank of America Merrill Lynch indexes. The move is an about face from 2014 when they surged almost 30 percent. Benchmark 10-year Treasuries extended declines Tuesday, while Australian and Japanese sovereign notes tumbled.
“Long-dated bonds remain a poor investment,” Francesco Garzarelli, a strategist at Goldman Sachs International in London, wrote in a report Monday. “Prospective returns on government bonds remain negative.”
Long bonds are tumbling as a global fixed-income rout intensifies with traders growing more confident the Federal Reserve will delay raising interest rates until later this year to let the economy gain momentum. The danger is inflation will quicken in the years ahead.
Thirty-year yields climbed to 3.07 percent as of 6:57 a.m. in London, rising from this year’s low of 2.22 percent on Jan. 30, Bloomberg Bond Trader data show. The yield on benchmark 10-year notes increased three basis points, or 0.03 percentage point, to 2.30 percent. The price of the 2 percent security maturing in February 2025 fell 7/32, or $2.19 per $1,000 face amount, to 97 10/32.
The figure will rise to 2.50 percent by Dec. 31, Garzarelli wrote.
Australian bonds tumbled for the 10th time in 11 days, sending 10-year yields up by 17 basis points to 3.03 percent. The yield on similar-dated Japanese notes jumped six basis points to 0.45 percent, set for the highest close since March.
“Investors are building a risk premium into longer-term bonds,” said Hideo Shimomura, the chief fund investor in Tokyo at Mitsubishi UFJ Asset Management, which oversees the equivalent of $74.9 billion. “The market is starting to think that disinflation has reached a bottom.’”
Investors would have been better off in shorter maturities, with three-year notes returning 0.8 percent this year through Monday, the Bank of America data show. The extra yield 30-year bonds offered over three-year notes increased to 2.05 percentage points Monday, the widest in six months.
Money managers will get a chance to bid on the securities this week when the Treasury Department sells $24 billion of three-year debt Tuesday, the same amount of 10-year securities Wednesday and $16 billion of 30-year bonds May 14.
Pimco’s $110.4 billion Total Return Fund increased its holdings of government and related debt to 23.4 percent of assets at the end of April, from 21.6 percent a month earlier, according to the company’s website Monday.
The figure was 35.3 percent in February. In addition to Treasuries, holdings in the category may also include related assets such as futures and agency bonds, the website shows.