Treasuries rise 8th day, longest gain since 2008 on safety bid

Inflation Outlook

Gauges of inflation expectations are subsiding following an initial surge triggered by the Fed announcement of more debt purchases on Sept. 13.

The five-year, five-year forward break-even rate, a measure of inflation expectations the Fed uses to help guide monetary policy, was 2.74. It has fallen from 2.88 on Sept. 14, which was the most in 13 months.

“Every time there’s an action like this, it’s almost like an energy drink,” said Rich Sega, chief investment officer for Conning Inc., which manages almost $87 billion for insurance companies and is based in Hartford, Connecticut. “People get a little ebullient, and then when it wears off, you realize there’s not a fundamental change,” he said on Bloomberg Television’s “First Up” with Zeb Eckert.

Bond Returns

Treasuries returned 0.4 percent since the end of June, according to Bank of America Merrill Lynch indexes. German debt gained 0.5 percent, and Japanese government bonds rose 0.4 percent, the data show.

Federal Reserve Bank of Philadelphia President Charles Plosser said yesterday more bond purchases probably won’t boost growth and may jeopardize the central bank’s credibility.

“We are unlikely to see much benefit to growth or to employment from further asset purchases,” he said in a speech at the district bank in Philadelphia. “Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility.”

The Federal Open Market Committee said on Sept. 13 it will buy mortgage-backed securities at a pace of $40 billion per month until the labor market improves. Policy makers have turned to unconventional tools to tackle unemployment that has stayed above 8 percent since February 2009.

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