For the past month, Treasuries were the poorest performing developed market bonds, delivering gains to investors internationally based only on a dollar rally.
In line with predictions that the Fed will increase interest rates in 2015 were increasing yields, making a recovery from an October 15 decline when concerns over global growth pushed the rate down, the most in over five years. Meanwhile, speculation for Fed rates is driving the dollar up. For 30-year securities, they pared an intraday advance after interest rates were cut in China.
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Treasury yields dropped sharply in mid-October, being the biggest winner from the flash crash. Over the past month, Treasury yields recovered based on significant improving risk conditions, this according to Vincent Chaigneau, global head of rates and foreign exchange strategy at Societe Generale SA. He added that in June, the Fed will raise interest rates.
US government debt coming due in over a year lost 0.6% in month ending yesterday. This was the worst performance of all 26 bond markets being tracked by the European Federation of Financial Analysts Societies and Bloomberg.
As shown in data from Bloomberg Bond Trader, there was little change for the US 10-year yield at 2.33% in early morning trading. The price of the 2.25% note due in November 2024 hit 99 1/4. From one month ago, the yield jumped from 2.22%. After touching 3.03% earlier, the 30-year bond yielded 3.05%.
Treasuries returned 9.8% to yen-based investors in the last month, this after accounting for a gain in the dollar, and for fund managers who use the Euro they hit 1.5%, as shown in data from EFFAS.
The Bloomberg Dollar Spot Index used to track US currency compared to 10 peers, increased today to a five-year high.
Currently, officials with the Fed are determining if more of their views pertaining to the likely pace of interest rate increases should be communicated after raising them from 0% in 2015.
Several participants believe that it within a short period of time it could be helpful to clarify the likely approach taken by the committee to the pace of increases, in the October 28 and 29 minutes that came out this week in Washington from the Federal Open Market Committee meeting.
Chaigneau states that rates might increase by 25 basis points a quarter from last June.
Kim Youngsung, head of overseas investment at South Korea’s Government Employees Pension service and which manages the equivalent of $3.6 billion said that in 2015, it is expected that interest rates will rise, adding that Treasuries will also go up. At this time, the US economy is in a good position so everyone anticipates the dollar remaining strong.
Kim also said that he is buying equities in the US while staying clear of government debt.
According to a survey from Bloomberg News consisting of economists prior to the report next week, the government will probably revised its figure for third quarter growth pertaining to gross domestic product from 3.5% estimated in October to 3.3%.
In comparison, the euro area economy grew 0.8% in the third quarter from the same time last year while Japan’s economy worsened. For the US economy, it is growing without stimulating inflation.
Regarding the difference between yields on 10-year notes and same maturity Treasury Inflation Protected Securities, which are used to gauge trader expectation for consumer prices over the debt’s lifetime, there was a narrowing yesterday to 1.83% points. At this level, it is the lowest since June 2013. It also to 1.89% points today.
From September to October, US consumer prices did not change, as shown yesterday in a government report.