Bloomberg News

Fed’s Inflation Gauge Reveals 2008 High a Distant Threat

March 29, 2012

BlackRock Inc., the world’s biggest money manager, expects yields on 10-year U.S. Treasury notes to rise to as high as 3 percent by the end the year in what may be the end of the 30-year rally in bonds.

Investors in Treasuries have lost 1.2 percent this quarter including reinvested interest, set for the biggest drop since losing 2.67 percent in the final three months of 2010, the Bank of America Merrill Lynch U.S. Treasury Master Index shows.

“Yields will grind higher,” executives including Rick Rieder, chief investment officer for fundamental fixed-income portfolios at BlackRock, wrote in a report dated March 28. However, “a yield explosion is not in the cards.”

Global central banks stand ready to buy long-term debt if rising yields threaten economic recovery, Rieder wrote. The New York-based firm advised investors to move away from “flight-to- quality” bonds such as Treasuries, bunds and gilts and into higher-returning assets as the economy stabilizes and interest rates begin to normalize.

The yield on the 10-year note fell four basis points, or 0.04 percentage point, to 2.16 percent at 3:42 p.m. in New York, according to Bloomberg Bond Trader prices.

Ten-year yields are up from 1.97 percent at the end of February, and this year’s low of 1.79 percent on Jan. 31. Yields were last at 3 percent in July 2011.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net;

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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