The Fed in September unveiled a plan to buy as much as $40 billion in mortgage-backed securities a month in an effort to bolster the economy and reduce unemployment. The central bank’s previous rounds of growth-boosting measures weakened the dollar and made commodity investments more attractive. Its second round of quantitative easing, known as QE2, began on Nov. 3, 2010.
The Dollar Index may rise more than 3 percent to 82.5 by the end of next year, according to the median forecast of 13 analyst forecasts compiled by Bloomberg News. It’s down about 0.3 percent so far this year.
Of 26 bond markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, all except Australia’s gained. U.S. Treasuries handed investors a 0.6 percent return, bringing their advance this year to 2.7 percent.
Every market is poised to generate positive returns this year for the first time since the peak of the financial crisis in 2008, according to data compiled by Bloomberg. Gains range from Portugal’s 52 percent to 1.9 percent for Sweden.
Greek bonds led the advance in November, surging 25 percent. European finance ministers arranged an emergency aid package for Greece on Nov. 27 in their latest bid to keep the euro intact. Greece today offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as it sought to cut its debt load.
Bond investors have been willing to accept lower interest rates to hold government debt because of slowing inflation. Average government bond yields dropped to 1.37 percent, from 1.76 percent on Dec. 31, Bank of America Merrill Lynch’s Global Sovereign Bond Index showed.
“There’s no inflation, so people are still buying,” Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has about $70 billion in assets, said in a Nov. 28 interview. “Interest rates should go lower.”
The Fed’s preferred measure of inflation expectations, the five-year, five-year forward break-even rate, fell to 2.634 percent as of Nov. 28, versus the average of 2.75 percent for the past decade.
The U.S. economy is poised to grow 2.2 percent this year and 2 percent in 2013, based on Bloomberg surveys of economists. Japan’s will expand 2 percent this year and 0.8 percent in 2013, while the euro area contracts 0.5 percent in 2012 before recovering next year, the surveys showed.