Bond Dealers Whipsawed on Treasury Bets

Wall Street's bearish stance on U.S. Treasuries is not paying off.

Betting against U.S. government debt this year is turning out to be a fool’s errand. Just ask Wall Street’s biggest bond dealers.

While the losses that their economists predicted have yet to materialize, JPMorgan Chase & Co., Citigroup Inc., and the 20 other firms that trade with the Federal Reserve began wagering on a Treasuries selloff last month for the first time since 2011. The strategy was upended as Fed Chair Janet Yellen signaled she wasn’t in a rush to lift interest rates, two weeks after suggesting the opposite at the bank’s March 19 meeting.

The U.S. economy will expand 2.7 percent this year from 1.9 percent in 2013, estimates compiled by Bloomberg show. Growth will accelerate 3 percent next year, which would be the fastest in a decade, based on those forecasts.

Dealers used to rely on Treasuries to act as a hedge against their holdings of other types of debt, such as corporate bonds and mortgages. That changed after the credit crisis caused the failure of Lehman Brothers Holdings Inc. in 2008.

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