Treasury Rout Is Muffled by Reserves, Tame Inflation (Update2)
By Deborah Finestone
June 18 (Bloomberg) -- The steepest decline in Treasuries since 2004 is convincing even the most bullish investors that U.S. government bonds are now in a bear market.
Bill Gross, the manager of the world's biggest bond fund at Pacific Investment Management Co., and Dan Fuss, whose Loomis Sayles Bond Fund has been the best performer among its peers the last decade, are preparing for higher market rates after yields on 10-year Treasuries, the benchmark for home mortgages and corporate borrowing, rose to a five-year high last week.
While the rout wiped out more than $550 billion from the value of government bonds during the past month, investors don't anticipate the losses of the last two bear markets, in 1994 and 1999. The combination of demand from overseas investors, who have $5.4 trillion in currency reserves, a four-fold increase in derivatives that spread risks among a wider group of investors and the slowest inflation rate since March 2006 increase the chances that this decline will be muted, they said.