Betting on Bernanke Returns 28% for Treasuries

Discussion in 'Wall St. News' started by ASusilovic, Sep 25, 2011.

  1. Betting on Ben S. Bernanke has been the most profitable trade for government bond investors in 16 years, defying lawmakers in the U.S. and abroad who said the Federal Reserve chairman’s policies would lead to runaway inflation and the dollar’s debasement.

    Treasuries due in 10 or more years have returned 28 percent in 2011, exceeding the 24.4 percent gain in all of 2008 during worst financial crisis since the Great Depression, according to Bank of America Merrill Lynch indexes. Not since 1995, when the securities soared 30.7 percent, have investors done so well owning longer-dated U.S. government debt.

    The rally continued last week, driving yields to record lows, as the Fed said it would exchange $400 billion of short- term Treasuries for those maturing in more than six years. The move, dubbed Operation Twist by traders, is designed to lower borrowing costs and keep the economy growing. Previous Fed efforts unlocked credit markets and helped ward off deflation.

    Bonds are producing “monster” gains, said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, which oversees $22 billion, in a Sept. 19 telephone interview.

    Lousy bonds returning 28%. Ay, ay, ay.