NEW YORK: US Treasuries were set to end the year stronger on Wednesday, and post their best year since 2011, after slightly disappointing manufacturing data, though trading volumes were very light before the New Year holiday.
This year's rally has confounded investors that bet that the bonds would be hurt as the Federal Reserve gets closer to raising interest rates, which many expect to happen in the first half of 2015.
"The year was really quite surprising to most people," said Mary Ann Hurley, vice president of trading at D.A. Davidson Co in Seattle.
Treasuries returned 4.95 percent in 2014 while long bonds astounded with a 27.23 percent return, according to data by Barclays from yesterday's close.
Bonds gained on Wednesday after the Institute for Supply Management-Chicago Business Barometer for December declined to 58.3, its lowest reading since July. Economists had expected a milder decrease to 60.1 from November's 60.8.
Slowing global growth, deflation fears and geopolitical tensions have all supported bonds this year even as the US economy gains strength.
"People were really not counting on the amount of global stresses that we're having," said Hurley.
Benchmark 10-year note yields have dropped to 2.18 percent after briefly breaking above 3 percent at the beginning of the year. Thirty-year bond yields have fallen to 2.75 percent, from 3.93 percent.
Disappointing growth early in the year even as the US economy expanded gave bonds a solid start to 2014.
"Mid-spring was such a disappointment. There was the realization that economic growth at the end of 2013 wasn't going to bring upward momentum into this year," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.
Surprisingly strong gross domestic product growth for the third quarter this year has raised hopes that economic momentum will gather pace next year.
The shooting down of a Malaysia Airlines flight over Ukraine in July also created a strong safety bid for Treasuries, Vogel said. "It brought home how intractable the conflict would become."
Bonds have also been boosted by plummeting oil prices, which are on track for their biggest annual decline since 2008.
Long-dated debt has benefited this year from a scarcity of safe assets, with investors reaching out the yield curve to generate higher returns. Treasuries paying far greater yields than comparable sovereign bonds in Germany and Japan.
The bond market is due to close early on Wednesday and will be closed on Thursday for the New Year holiday.
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