Treasury Bears Risk Year of Disappointment, JPMorgan's Tan Says

  • U.S. 10-year notes gained for first five days of new year
  • Median analyst estimate is yield to rise to 2.75% by end 2016

Investors braced for a slide in U.S. Treasuries this year might be in for a shock, according to JPMorgan Asset Management.

“If you were to ask me if we are going to see 3 percent or the lows of last year, I would choose the latter,” said David Tan, who helps oversee more than $1.7 trillion as the firm’s London-based global head of rates. “The downside risks globally far outweigh the upside risks. What we absolutely do not see is a bear market in Treasuries this year.”

While the median estimate of analysts surveyed by Bloomberg is for U.S. 10-year yields to climb to 2.75 percent this year, the 10-year note started 2016 with five days of gains after cuts to China’s reference rate sparked financial market turmoil. Treasuries climbed again on Tuesday, paring a decline from the previous day.

Tan’s forecast comes even as Federal Reserve policy makers predict they will raise interest rates four times this year. The U.S. central bank lifted rates for the first time in nearly a decade last month, helping Treasury yields post an annual increase, but officials have warned China’s economic slowdown and the other sources of turmoil that have greeted 2016 make it difficult to predict future policy.

The yield on 10-year Treasuries fell two basis points, or 0.02 percentage point, to 2.16 percent as of 6:25 a.m. London time, according to Bloomberg Bond Trader data. The 2.25 percent security due November 2025 rose 5/32, or $1.56 per $1,000 face amount, to 100 25/32. The yield added six basis points on Monday after tumbling 15 basis points last week. It touched 1.64 percent on Jan. 30, 2015.

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