Treasuries Outperform Again (12/14)

Per the article below, treasuries have delivered important portfolio protection again this year. Long-term treasuries (TLT) are up 25% year-to-date, while the total bond market (BND) is up just 4%.

The trailing 5-year annualized return for long-term treasuries (TLT) is now 10%, versus just 4% for the total bond market (BND) over that period.

See our prior blog on TLT, and

ETF PM currently has long positions in TLT.

Treasuires Rally Most Since 2012 on Outlook for Inflation

Daniel Kruger, 12/12/14

Treasuries rallied, with 10-year yields falling the most since June 2012, as a plunge in crude oil prices prompted speculation that Federal Reserve interest-rate increases may be delayed by slowing global inflation.

The difference between yields on five- and 30-year debt narrowed for an eighth week, the longest streak since 1992, as oil futures fell below $58 for the first time since May 2009. Bond yields showed five-year inflation expectations fell to the lowest since 2010. Fed policy makers will consider whether to retain the vow to hold interest rates at virtually zero for a “considerable time” when they meet Dec. 16-17.

“People think that the Fed will have to acknowledge this decline in inflation,” said Priya Misra, head of U.S. rates strategy at Bank of America Corp. in New York, one of the 22 primary dealers that trade with the central bank. “The big thing this week has been oil.”

The yield on Treasury 10-year benchmark securities slid 23 basis points this week, or 0.23 percentage point, to 2.08 percent in New York, according to Bloomberg Bond Trader prices, the steepest decline since June 2012 The price of the 2.25 percent security rose 2, or $20 per $1,000 face amount, to 101 15/32.

Yield Level

Five-year Treasury yields fell 17 basis points to 1.51 percent, below the level they traded at they traded at before the Labor Department’s Dec. 5 report that the U.S. added 321,000 jobs in November. It was the largest gain since January 2012 and spurred speculation central bank policy makers would ramp up preparation for the first interest-rate increase since 2006.

The difference between five- and 30-year yields narrowed this week to 1.20 percentage points, compared with an average of 2.19 percentage points during the past five years.

Hedge-fund managers and other large speculators increased positions that profit from a decline in 10-year note futures to the most since April 2012, U.S. Commodity Futures Trading Commission data showed. Net-short positions totaled 201,335 contracts as of Dec. 9, up from 162,524 a week earlier.

The divergence between long- and short-term Treasuries shows up in this year’s returns. Two-year notes have gained 0.7 percent, versus 27 percent for 30-year bonds, based on Bank of America Merrill Lynch indexes.

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