Treasury 30-year bond returns topped 25 percent this year for the first time since 2011, driven by the outlook for low inflation, before the U.S. sells $13 billion of the securities today.
The debt has gained 27 percent, the most since a 36 percent advance during the European debt crisis three years ago, based on Bank of America Merrill Lynch indexes. Tumbling commodity prices and weakening global economic growth are helping keep costs in check. Data today and tomorrow are forecast to show U.S. producer prices fell as retail sales and consumer confidence rose.
“Inflation is slowing because of very low commodity prices and the very sluggish pace of the global recovery,” said Park Sungjin, who invests $7 billion as head of asset management at Meritz Securities Co. in Seoul. “That is the best news for fixed-income investors.”
Thirty-year yields were little changed at 2.83 percent at 6:46 a.m. in London, according to Bloomberg Bond Trader data. The price of the 3 percent note due November 2044 was 103 11/32.
At the last 30-year sale in November, investors bid for 2.29 times the amount of debt offered. It was the lowest level since May at the monthly auctions.
U.S. benchmark 10-year notes yielded 2.16 percent. Australia’s 10-year yield fell as low as 2.84 percent, a level not seen since July 2012.
Japan’s dropped as far as 0.39 percent, which hasn’t been touched since April 2013.
This year’s rally is raising concern Treasuries are becoming too costly.
“As we are look into 2015, Treasuries here probably are veering on the expensive side,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “We are looking for high yields over ’15.”
U.S. 10-year yields will rise to 3.11 percent by the end of next year, based on a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
The Federal Reserve will also increase its benchmark interest rate, the target for overnight loans between banks, next year, based on the responses.
Long bonds are reaping the biggest gains as inflation expectations fall. Low costs help protect the value of a bond’s fixed payments.
The difference between yields on U.S. 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to 1.7 percent this week. It was the lowest level in more than three years and compares to the average of 2.19 percent for the past decade.
Globally, bond investors anticipate consumer prices will rise an average 1.14 percent a year, based on yields of government debt for developed nations included in indexes compiled by Bank of America Corp. Japan’s economy has contracted for two quarters and Europe’s is growing at less than 1 percent.
The Bloomberg Commodity Index (BCOM) extended its decline to the lowest levels since 2009 this week.
U.S. retail sales probably rose 0.4 percent last month from October, based on a Bloomberg News survey of economists before the report today.
Producer prices fell in November and consumer confidence extended its advance to a seven-year high, reports tomorrow will show, based on responses from economists.