U.S. bonds cheapest since ’90 versus bunds counter Buffett

Easy Ownership

“As expensive as Treasuries are, if you compare them to other developed markets it makes it easier to own them,” Raman Srivastava, the head of global fixed income at Boston-based Standish Mellon Asset Management Company LLC, which manages $170 billion, said in a telephone interview on May 15.

In FTN’s analysis, which adjusts for today’s record low interest rates around the world as monetary policies from the U.S., euro zone, the U.K. and Bank of Japan converge to give a more-accurate reading of relative value, Treasuries are about 30% cheaper than average, according to Vogel.

Treasury 10-year notes fell in each of the past three weeks, the longest stretch since December. Yields have risen from 1.66% on April 26 amid reports showing gains in jobs and consumer confidence. The price of the benchmark 1.75% security due May 2023 declined 15/32 last week, or $4.69 per $1,000 face amount, to 98 5/32, Bloomberg Bond Trader data show.

Savers dependent on bond payments are “victims” of central bank policies to lower borrowing costs, Buffett, the chief executive officer of Berkshire Hathaway Inc., said at the company’s annual shareholder’s meeting in Omaha, Nebraska, May 4.

Rally ‘Over’

“I feel sorry for people that have clung to fixed-dollar investments,” he said.

Bill Gross, who runs the world’s biggest bond fund for Pacific Investment Management Co. in Newport Beach, California, said in an interview on Bloomberg Television May 16 that the three-decade bull market for bonds “was over.”

He still increased Treasuries to 39% of his $293 billion Total Return Fund in April, the highest level since July 2010. Treasuries, for now “are a better alternative than cash,” he wrote in a May 1 investment outlook.

Treasuries have lost 0.33% this year, including reinvested interest, compared with 0.93% for the global sovereign bond market, Bank of America Merrill Lynch indexes show. The MSCI All-Country World Index of equities has risen 7.5% this year, and corporate bonds have returned 2.08% as measured by Bank of America Merrill Lynch Indices.

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