Goldman Asset Management Sees Bonds Drop as Analysts DivideWes Goodman
Analysts are increasingly split on the outlook for Treasuries this year, helping to drive swings in the U.S. bond market.
After a surge in January, Treasuries are headed for the biggest monthly loss since May 2013, according to Bank of America Merrill Lynch data. The difference between the most bullish and most bearish year-end yield forecasts is the widest since Bloomberg began collecting the data.
While Standish Mellon Asset Management says borrowing costs will stay low, Goldman Sachs Asset Management says rising Treasury yields this year will curb investor returns. U.S. 10-year yields will climb almost 1 percentage point to about 3 percent by Dec. 31, according to Candice Tse, a senior strategist at Goldman Asset in New York.
“Fundamentals from broadening global expansion may support higher rates over time,” Tse said in comments posted on Fidelity Investments’s website. “Investors should temper their return expectations.”
The benchmark 10-year yield was little changed at 2.03 percent at 8:37 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 2 percent note due in February 2025 was 99 23/32.
Treasuries slumped 1.8 percent in February as of Thursday, a Bank of America Merrill Lynch index shows. That comes after they jumped 2.9 percent in January, the most since 2008 when the collapse of Lehman Brothers Holdings Inc. sent investors rushing for the safest assets.
Raman Srivastava, the co-deputy chief investment officer at Boston-based Standish, said demand from central banks will meet a shrinking pool of available debt. He spoke on the same panel as Tse, which was assembled by Fidelity.
“Technicals, combined with relatively weak global economic growth, should keep a lid on global yields, including Treasuries,” Srivastava said.
Mixed U.S. economic indicators are driving the up-and-down market. Jobs were added in January and wages are rising, though retail sales slid and a gauge of consumer sentiment fell from an 11-year high, according to data issued this month.
A plunge in energy costs pulled the consumer-price index down by 0.7 percent in January, the biggest decline since December 2008, a Labor Department report showed Thursday in Washington. Excluding food and fuel, which are often volatile, costs rose 0.2 percent, more than projected by a Bloomberg News survey of economists.
Federal Reserve Chair Janet Yellen is also grappling with mixed messages on the economy. She said this week that a change in the central bank’s pledge to be “patient” on the timing of an interest-rate increase would signal that liftoff may come at any meeting, while not locking policy makers into a timetable for tightening.
If the consensus view in Bloomberg’s survey of economists proves correct, those investors betting on higher borrowing costs will be the ones making money in 2015. Benchmark 10-year yields will climb to 2.62 percent by Dec. 31, according to economists’ responses, with the most recent forecasts given the heaviest weightings.
The responses vary from a high of 3.9 percent and a low of 1.84 percent, a gap of 2.06 percent. That’s up from 1.66 percent in July, when Bloomberg began collecting the data.
Trouble is, almost everyone predicted yields would rise last year and they got it wrong.