U.S. Growth Decoupling From Bonds Means Lower Yields to JPMorgan
December 11, 2011, 7:26 PM EST
By Daniel Kruger and Liz Capo McCormick
Dec. 12 (Bloomberg) — The strengthening U.S. economy is proving no deterrent to the biggest rally in Treasuries since 2008, and America’s largest bank says it may get even better for bond investors.
U.S. government debt has returned 8.9 percent this year, including reinvested interest, Bank of America Merrill Lynch indexes show. That compares with the 1.8 percent gain in the Standard & Poor’s 500 index of stocks when dividends are included. The rally in Treasuries accelerated since October even as reports showed improvements in everything from consumer confidence to jobless claims to manufacturing.
While government debt usually suffers as a strengthening economy spurs inflation and encourages investors to take bigger risks with their money, this recovery has been different because Europe’s sovereign debt crisis has elevated the stress in the global financial system, bolstering demand for the safest assets. Strategists at JPMorgan Chase & Co. say 10-year Treasury yields, which ended last week at 2.06 percent, may fall toward the record low of 1.67 percent by the end of March.