U.S. Treasury Yields May Keep Falling

Don’t bet against the U.S. bond market rally anytime soon.  Conflicts in Ukraine and the Middle East, and record low bond yields in Europe, have unleashed a stampede into Treasurys, knocking benchmark 10-year yields to 2.30 percent, a 14-month low at one stage on Friday. They ended the week at 2.34 percent.

The U.S. bond rally, which accelerated on Friday after Ukraine claimed its artillery destroyed part of a Russian armored column that entered its territory, has shown earlier market calls from some leading bond investors, such as DoubleLine’s Jeffrey Gundlach, to be on the money.

“We are in a market environment now that is largely beyond fundamentals,” said Chris Orndorff, portfolio manager at Western Asset Management in Pasadena, California, a leading U.S. bond manager that has about $470 billion in assets. “The falling yield levels are a reaction to panic, as U.S. Treasurys continue to play the role that they have always played, the favorite asset in a flight-to-quality environment.”


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