‘Worst’ Treasuries Call Missed Slowdown, BofA’s Woo Says

Bank of America Merrill Lynch's David Woo, head of global rates and currencies, said the bank's worst call this year was a bearish forecast for Treasuries that failed to account for a global slowdown.

The “rates forecast has been our worst forecast this year, I mean myself included,” Woo, based in New York at the Bank of America Corp. unit, said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene and Scarlet Fu. “Where we’ve really gone wrong was that we were too bullish. We were bullish on the U.S. for the right reasons, but we didn’t quite appreciate that the U.S. cannot escape from the implication of a global slowdown.”

Yields on benchmark U.S. 10-year notes fell to 1.86 percent on Oct. 15, the lowest since May 2013, on speculation faltering growth in Europe and China may damp the U.S. economy.

The yield was 2.19 percent today in New York, more than half a percentage point lower than Bank of America’s forecast of

2.75 percent. The bank’s estimate was 3.1 percent until three weeks ago, according to Woo. The median projection of economists and analysts in a Bloomberg survey is 2.7 percent.

Traders have cut bets on the timing of Federal Reserve interest-rate increases next year. Futures trading today showed a 20 percent likelihood the central bank will raise rates by July 2015, versus a 52 percent chance seen on Oct. 3. Policy makers have held the benchmark rate target at virtually zero since 2008.

‘Recoupling Risk’

“Investors have been pricing in this decoupling theme, U.S. decoupling from the rest of the world,” Woo said. “And we’re starting to realize, possibly we’re looking at some recoupling risk around the corner.”

Germany’s Economy Ministry cut its 2014 growth forecast last week to 1.2 percent, from 1.8 percent, and reduced its estimate for next year to 1.3 percent. Yields on sovereign debt of the euro area’s so-called peripheral nations soared on speculation Greece won’t be able to finance itself at sustainable rates without the support of its regional partners.

China, the world’s second-biggest economy, will set a growth target of about 7 percent for 2015, tolerating the weakest expansion in a generation as leaders tackle debt risks and imbalances, according to analysts polled by Bloomberg.

The U.S. economy will expand 2.2 percent this year and 3 percent in 2015, according to Bloomberg News surveys. The euro area will grow 0.8 percent and 1.2 percent, while Japan’s economy will expand 1 percent in 2014 and 1.2 percent the following year, the surveys predict.

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