By Min Zeng
U.S. Treasury bonds strengthened Tuesday and were set for the
fifth straight quarterly price gain, the longest winning streak in
more than a decade.
Demand perked up as investors tweaked their portfolios to
prepare for the end of the first quarter. Fund managers also bought
bonds to match the month-end adjustments of their benchmark bond
indices.
In recent trading, the yield on the benchmark 10-year Treasury
note was 1.95%, compared with 1.959% on Monday, according to
Tradeweb.
When bond prices rise, their yields fall.
The yield fell from 2.173% at the end of 2014. The last time the
yield fell for five quarters in a row was back in March 2001.
The Treasury bond market overall has handed investors a total
return--including price change and interest payments--of 1.48% this
year through Monday, following 5.05% return last year, according to
Barclays PLC.
But lower yields mean lower income. With yields near historical
lows, analysts have warned that if sentiment on the bond market
sours, bondholders are vulnerable for capital losses.
Investors scooped up ultrasafe U.S. government bonds due to an
uncertain growth outlook overseas, subdued inflation in the
developed world and mixed economic readings in the U.S. amid a
harsh winter in east coast. Adding to U.S. bonds' charm: they offer
much more attractive yields compared with government debt sold by
Germany, Japan, the U.K. and France.
The European Central Bank launched its bond buying program
earlier in March which is expected to run through September 2016.
The monetary stimulus has sent government bond yields in the
eurozone to record lows this quarter with many yielding below zero,
which has driven buyers into U.S. Treasury bonds for higher
income.
"The yield differential between the U.S. and the rest of the
world continues to drive foreign buyers into Treasury bonds," said
Thomas Roth, executive director in the U.S. government bond trading
group at Mitsubishi UFJ Securities (USA) Inc. in New York.
"Domestic investors become convinced by Federal Reserve officials
that these low yields are here to stay."
On Tuesday, the yield on the 10-year German government bond was
0.191%, the yield on the 10-year government bond in Japan was
0.398% and the yield on the U.K. government debt was 1.573%.
The mixed outlook has cast doubt over whether the Fed could
start raising short-term interest rates this June. Higher
short-term interest rates could dent the value of outstanding
bonds, as buyers are likely to flock to new bonds issued at higher
yields.
The prospect of the Fed waiting longer to tighten monetary
policy has encouraged investors to buy bonds. Many investors still
see a very low probability for the Fed to raise rates this
summer.
The federal-funds futures, used by investors and traders to
place bets on central-bank policy, showed Tuesday that the market
sees a 6% likelihood of a rate increase in June, unchanged from
Monday, according to data from CME Group.
Fed Chairwoman Janet Yellen said Friday the timing hinges on how
the economy performs in the months ahead. She said the tightening
cycle this time would be gradual. The Fed last raised interest
rates in 2006. It has kept the fed-funds target rate near zero
since December 2008.
The nonfarm payrolls report for March due this Friday is the key
datapoint to shape up investors' expectations on the timing of the
first interest-rate increase by the Fed in nearly a decade. The
Fed's next policy meeting is set for April 28-29.
Economists polled by The Wall Street Journal expect the U.S.
economy to have added 248,000 new jobs in March, after a net gain
of 295,000 in February. The unemployment rate is expected to have
stayed unchanged at 5.5%.
"I do think the U.S. economic numbers will show some improvement
and bond yields will be slightly higher in coming months," said
Larry Milstein, head of government and agency trading at R.W.
Pressprich Co. in New York. "I do not anticipate a major move
higher in yields."
Write to Min Zeng at min.zeng@wsj.com
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