(Bloomberg) — The worst thing investors in U.S. exchange- traded bond funds could have done so far this year was trust economists’ forecasts that Treasuries would fall.
Nine of the 10 biggest ETF losers in the U.S. debt market all fall when bonds rally, based on data compiled by Bloomberg as of Thursday. At the top of the list is the iPath U.S. Treasury 10-year Bear ETN, which has declined about 20 percent. Instead of dropping, Treasuries are drawing demand this year because they yield more than bonds in Japan or Europe. Uneven U.S. economic growth is making investors question how fast the Federal Reserve can raise interest rates.
“There’s overseas demand, and the economic numbers haven’t been that strong,” said Ali Jalai, a bond trader in Singapore at Bank of Nova Scotia, one of the 22 primary dealers that underwrite the U.S. debt. “That’s putting doubt into people’s minds as to how much and when the Fed’s going to tighten. There’s only so much that Treasuries can sell off.”
U.S. 10-year yields were little changed at 1.89 percent as of 11:02 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2 percent note due in February 2025 was 100 30/32.
Ten-year bonds yield 0.085 percent in Germany and 0.32 percent in Japan.
While U.S. job gains topped 200,000 in January and February, they slowed to 126,000 in March.
The Fed will raise interest rates in about eight months, a Morgan Stanley index shows.
Treasuries have returned 2 percent this year as yields fell, based on data compiled by Bloomberg. Economists surveyed in December projected the opposite would happened.
While they’ve trimmed their forecasts, the analysts still see yields rising through the rest of 2015. Ten-year borrowing costs will climb to 2.52 percent by Dec. 31, based on the Bloomberg surveys, with the most recent forecasts given the heaviest weighting.
