Treasury Bull Ito’s Love of 30-Year Debt Undimmed by 11% Loss

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It takes courage for Mizuho Asset Management to stick with 30-year Treasuries when losses are getting this painful.

Yusuke Ito, a bond investor for the company in Tokyo, says the longest run of declines in more than a year is being driven by a plunge in German bunds that’s also cutting demand for Treasuries. Data in the past month on U.S. retail sales, industrial production, producer prices and gross domestic product have all fallen short of economists’ expectations, and they all argue for a rebound in the bond market, he said.

“In terms of fundamentals, there’s nothing to justify rising yields in the U.S.,” said Ito, one of the investors for the $33 billion under management at Mizuho. “We’re sticking to our view.” The company has been betting on 30-year bonds for all of 2014 and 2015, he said.

While the bet was a winner last year, 30-year Treasuries have fallen 11 percent in the month through Tuesday, according to Bank of America Merrill Lynch indexes. The loss for 2015 totals 5.2 percent.

Gone are the glory days of 2014, when so-called long bonds returned almost 30 percent.

Thirty-year yields declined two basis points, or 0.02 percentage point, to 3.06 percent at 5 a.m. New York time, based on Bloomberg Bond Trader data. Benchmark 10-year yields dropped the same amount to 2.27 percent. U.S. government securities have fallen for the past four weeks, the longest run of losses since December 2013.

Fed Minutes

Five- to seven-year Treasuries, which are more sensitive to what the Federal Reserve does with interest rates, will join the rally, Ito said. The minutes of the Fed’s April meeting, which will be released Wednesday, will probably show policy makers are willing to wait to raise interest rates, he said.

The central bank will increase its benchmark from zero in about 7 1/2 months, a Morgan Stanley index shows.

Not everything in the U.S. economy is slowing. Housing starts surged 20 percent in April, the biggest gain since 1991, the Commerce Department reported Tuesday.

One thing Ito has going for him is an inflation rate that’s been stuck at about zero, which will help preserve the value of the fixed payment from bonds.

U.S. consumer prices fell 0.2 percent in April from the year before, according to a Bloomberg survey of economists before the Labor Department reports the figure May 22.

If that proves accurate, it means 30-year bonds yield 3.26 percent after accounting for inflation, the highest since 2010

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