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US Bond Sentiment is worst since disastrous ‘09

Publisher: Bloomberg
Authors: Liza Capo McCormick and Susanne Walker

Get ready for a disastrous year for US government bonds.

That’s the message Wall Street forecasters are sending. With Fed Chair Janet Yellen poised to raise interests in 2015 for the first time in almost a decade, prognosticators are convinced Treasury yields have nowhere to go except up. Their calls for higher yields next year are the most aggressive since 2009, when US debt securities suffered record losses, according to data compiled by Bloomberg.

Getting right hasn’t been easy. Almost everyone who foresaw a sell-off this year as the Fed ended its bond buying was caught off-guard as lackluster US wage growth and turmoil in emerging markets propelled Treasuries to the biggest returns since 2011. Now, even as the bond market’s inflation outlook tumbles, forecasters are sticking to the view that Treasuries are a losing proposition as the economy strengthens.

“Next year should be the break-out year finally,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., said by phone from New York on Dec 23. “The market is ignoring the rhetoric that Yellen and the FOMC is getting closer and closer to tightening. The market has it wrong.”

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