It's been a roller-coaster ride for long-term U.S. bonds this year.
If you played it correctly at every turn, you could've made a killing, given the unprecedented 8.9 percent return in January alone. If you played it wrong, which was easy to do, you probably lost a good deal of cash, with the debt plunging 10 percent since the start of February.
Here's some advice on how to proceed from an investor who's played it well: Hang onto to your 30-year Treasuries. Perhaps even think of buying more.
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"Given the backup that we've seen globally in the past four to five weeks, our attitude is we want to be longer" with respect to the maturities of the firm's debt holdings, said Mark Lindbloom, a money manager at Western Asset Management Co. who helps oversee the $15 billion Western Asset Core Plus Bond Fund, which has outperformed 96 percent of its peers over the past year. "We are more aggressively longer-duration than we have been in some time."
The firm has boosted its holdings of longer-dated U.S. government bonds to levels last seen at the the end of 2014, the Pasadena, California-based Lindbloom said in a telephone interview. Not only do the yields look relatively attractive, he said, but the debt provides an effective hedge against a selloff in riskier assets, such as junk bonds and stocks.
At first glance, it may seem odd to buy U.S. government bonds right now.
The Federal Reserve is moving closer to raising benchmark interest rates for the first time since 2006 as the world's biggest economy appears to be gaining steam. Inflation expectations, while still well below average, have crept up a bit in the past few months as oil prices stabilize.
On the other hand, the data hardly points to gangbusters growth anywhere in the world, even in the U.S. The stimulus programs of central banks from Europe to Japan are suppressing yields in those regions, sending yields negative on trillions of dollars of debt and prodding investors to search for better value around the world.
That's taken many global investors to the U.S., where long-term yields of 2.9 percent look like a relative steal compared with the 1.2 percent yield on similar-maturity German bonds. That's kept a lid on how much yields could rise at this point.
Clearly, Lindbloom isn't the only investor who sees value in longer-term Treasuries right now. Yields on the 30-year notes have fallen from 3.1 percent on May 13. After losing 12.4 percent from the end of January through that day, longer-term U.S. debt has since gained 2.8 percent, according to Bank of America Merrill Lynch index data.
If yields keep shrinking, there will be a point at which investors should sell the debt again, Lindbloom said. Just not quite yet.
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