“The Treasury market remains beholden to the progress on the budget debate, or more accurately the lack thereof,” Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut, wrote in a note to clients. “We’re not entirely convinced that the moment for a compromise has passed, but the rhetoric does increasingly sound like the best we can hope for is a stop-gap or can-kicking resolution.”
John Brynjolfsson, chief investment officer at Armored Wolf LLC, said his firm is buying Treasury 10-year notes as lawmakers grapple in the budget-deficit showdown.
“That’s something that would benefit if the economy is dysfunctional and the Fed kind of steps up its open-mouth operations,” Brynjolfsson, who’s based in Aliso Viejo, California, said in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Michael McKee and Joe Brusuelas.
The efforts in Washington probably will produce “nothing that’s reasonable,” Brynjolfsson said.
U.S. government securities returned 2.3 percent in 2012 on an annualized basis through yesterday, set for the worst performance since a 3.7 percent loss in 2009, according to Bank of America Merrill Lynch indexes. The Standard & Poor’s 500 Index gained 16 percent, including reinvested dividends, amid signs the U.S. economy is improving.
Treasuries gained less than 0.1 percent this quarter and lost 0.4 percent this month, Merrill Lynch index data show.
A decline in bond yields this year surprised analysts. Economists began 2012 with predictions that 10-year yields would climb to 2.50 percent by Dec. 31 from 1.88 percent at the close of 2011.
The Fed plans to buy $45 billion of Treasuries a month at least as long as unemployment stays above 6.5 percent and inflation between one and two years ahead is projected to be no more than 2.5 percent. The central bank is also purchasing $40 billion of mortgage-backed securities each month.
The central bank will buy Treasuries today maturing from February 2021 to November 2022, according to the Fed Bank of New York’s website. The purchase is the last in the program to replace short-term Treasuries in the Fed’s holdings with longer- term debt to cap borrowing costs.
Ten-year yields will climb to 2.17 percent by the end of 2013, according to a Bloomberg survey of economists.