Wrong So Far in 2014, Money Managers Still See Treasury Yields Rising

Tuesday, 01 Apr 2014 08:14 PM

By Dan Weil

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The Treasury market confounded expectations for higher yields at the long end of the curve in the first quarter, but some money managers expect yields to rise in the second quarter amid signs of stronger economic growth.

The 10-year Treasury yield stood at 2.76 percent Wednesday afternoon, down a bit more than one-quarter percentage point from 3.03 percent Dec. 31.

"Yields should drift higher in the coming months, unless the U.S. growth fails to gain momentum," Jim Leaviss, head of fixed income at M&G Investments in London, told The Wall Street Journal

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But he, like many others, doesn't expect a sharp increase in rates. "Bond investors are now better prepared for higher yields after last summer's big sell-off," Leaviss said.

Scott DiMaggio, a fund manager at AllianceBernstein, agrees with those who say that severe winter weather has been holding the economy down, which means the economy is set to snap back and push Treasury yields higher, and prices lower.

"The U.S. data will improve later this year," he told The Journal. "The bond market would feel the pain." 

Analysts at JPMorgan Chase and Morgan Stanley predict the 10-year Treasury yield will rise to 3 percent at mid-year, while Goldman Sachs analysts forecast 3.1 percent, The Journal reports.

Treasury yields have risen for three straight days. "Rates have begun to creep higher," Dan Greenhaus, chief global strategist at BTIG, told Bloomberg.

"Fed rate hikes are being priced in more aggressively, and the economy continues to improve. Still, it’s hard to read too much into this environment until we get further clarification on how real the recovery is. Friday’s [jobs] number will be closely watched."

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