June 23, 2024

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Bond Market Has Fighting Chance to Avoid Historic Losing Streak

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(Bloomberg) — A prospect that might have seemed unthinkable just a couple short weeks ago is coming into view for bond traders: The potential for US Treasuries to post an annual gain for the first time since 2020.

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It’s well short of turning into ‘The Year of the Bond’ that many money managers expected entering 2023. But with this week’s remarkable about-face in the world’s biggest bond market, traders now have a sliver of hope that they can avoid an unprecedented three straight years of losses in Treasuries.

US government debt is coming off a weekly rally reminiscent of the market chaos of March 2020. Ten-year yields, a benchmark for global borrowing, fell about 25 basis points amid growing confidence that the Federal Reserve is done hiking interest rates, with the latest spark coming Friday on signs US job growth is cooling.

“The economic trajectory is lower,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “We’ve been looking for rates to correct lower.”

Faranello says he’s targeting a decline to 4.35% on the 10-year, from 4.57% now. It’s not even two weeks since the rate eclipsed 5% for the first time since 2007.

Even a flat year might be a welcome respite for bond investors, after Treasuries lost a record 12.5% in 2022, following a 2.3% hit the year before. A strategy of merely holding Treasury bills has earned about 4.2% this year.

The Bloomberg US Treasury index is still down 1.5% for this year through Thursday. But for bond bulls, that’s a move in the right direction after the gauge was down 3.3% for 2023 as of Oct. 19. Holders of 10-year notes would break even for this year if the yield finishes December at about 4.4%, according to data compiled by Bloomberg.

The outlook for bonds also brightened this week after the Treasury announced that it would lift debt issuance in the November-to-January period by less than many on Wall Street expected.

‘Fed Is…

2023-11-04 16:00:00

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