Why Treasurys Won’t Crater – Wall Street Journal – 03/24/12

Treasury yields have jumped so quickly that some investors are ready to proclaim the end of the three-decade bull market for U.S. government bonds.

Such talk might be premature, strategists say. Investors would be better off tweaking their bond holdings rather than overhauling them.

The yield on the 10-year Treasury rose to 2.39% on Monday, up from 1.96% on March 6. The 0.43 percentage point increase might seem steep, but it was the 35th nine-day rise of that magnitude in the past decade.

Since bond prices move in the opposite direction of yields, investors lost about 3.7% during that period.

On April 5, 2010, investors, confident about the pace of the U.S. economic recovery, pushed 10-year Treasury yields above 4%, before signs of economic stagnation and the first rumblings of the European debt crisis sent yields tumbling down to 2.47% by Aug. 30 of that year.

Yields spiked again, hitting 3.75% on Feb. 8, 2011, as investors bet once more that the U.S. economy had turned the corner. But renewed fears about the strength of the economy and a possible Greek default sent Treasury yields down to record lows.

With the 10-year yield still below the inflation rate, investors are lagging rising prices. Price appreciation, meanwhile, is limited to about 15%—and only if yields fall to zero.


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