As often is the case, there has been flight to quality buying of Treasury bond futures as equity indexes retreated in May. Whereas negative revisions to growth expectations have hampered stock growth, they have ignited demand for bonds.
Ed Fitzpatrick, portfolio manager at Schroders, says growing doubt in the traction of the recovery is boosting bond demand. “What has happened is that the expectations going into 2011 were fairly optimistic,” he says. “From the April selloff, it has been a re-evaluation of growth and inflation expectations that have been driving yields lower, accompanied by the uncertainties about the sovereign debt issues in Europe.” He expects prices to continue to rise with resistance coming around a yield of 4.20%.
Keith Springer, president of Springer Financial Advisors, says the slew of recent bad news has helped bolster bonds. “We’re seeing strength and a flight to quality. The end of QE2 means less borrowing. The U.S. is in no risk of default and nobody in the universe believes there’s even a remote chance it will default. So it is still the reserve currency, still the quality in times of turmoil,” he says. Springer also expects bond prices to continue to rise and sees support at 124 and resistance at 126 to 128.