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Volatility Calmed Amid Worst Loss for Treasuries Since 2010




The biggest losses for Treasuries in more than two years and disunity among Federal Reserve officials over the pace of economic stimulus are doing little to rattle investors calmed by slowing inflation and too-high unemployment . U.S. government bonds lost 1.27 percent including interest this month, the most since December 2010, according to Bank of America Merrill Lynch’s U.S. Treasury Index. At the same time, investor expectations for inflation have fallen, bond strategists are cutting year-end forecasts for 10-year yields, and options on interest-rate swaps show projected price swings just above the six-year low reached in April. Unemployment at 7.5 percent, estimates for the narrowest budget deficit since 2008 and a 1.1 percent inflation rate are keeping yields and volatility contained even as investors fret while Fed Chairman Ben S. Bernanke and some of his colleagues disagree about when to curtail the central bank’s $85 billion a month of bond purchases.



President Barack Obama needs low rates to stimulate an economy forecast to grow 2 percent this year, below the average of 2.5 percent for the past two decades. “We expect things to continue to go sideways for the next couple of months with less volatility than you’ve seen this month,” Gary Droscoski, a fixed-income money manager in New York for GAM USA, which oversees $16 billion, said in a telephone interview on May 22. “We really don’t buy into this more-recent talk about re-pricing in the bond market .” Yields Rise While yields on 10-year bonds rose above 2 percent last week for the first time since March, 75 strategists surveyed by Bloomberg cut their median forecasts for year-end rates to 2.15 percent from 2.25 percent in April. Treasury Inflation-Protected Securities show investors anticipate an average increase of 2.26 percent in consumer prices for the next decade, down […]

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