Longer-dated US Treasuries look set to post their best return since 2014 on Tuesday, after concerns about the slowing US economy prompted the Federal Reserve to cut interest rates three times this year.
Slowing growth that was worsened by the US-China trade war, tepid inflation and concerns that the US central bank went too far in raising rates last year prompted a radical shift in 2019 that at one point sent benchmark yields to their lowest levels since 2016.
The closely watched yield curve between two-year and 10-year notes also inverted in August, signaling a likely recession in the next one to two years. It has since shifted to its steepest since October 2018.
Longer-dated debt gained this year on concerns that low inflation and weak growth will persist or worsen. Demand for yield, with many bonds in Europe and Japan trading in negative territory, added to their outperformance.
Thirty-year bonds returned 17.15% this year through Monday, according to Bank of America Merrill Lynch. Final data will not be updated until late on Tuesday.
Benchmark 10-year notes have returned 9.03%through Monday.
In 2014, 30-year bonds returned 29.43% and 10-year notes returned 10.72%.
Optimism this month that US growth is improving, and an increase in risk appetite after the United States and China agreed to the first phase of a trade deal, however, has eaten into the year's returns.
Yields hit session highs on Tuesday after US President Donald Trump said the agreement will be signed on Jan. 15 at the White House.
Thirty-year bonds are on track for a 2.83% loss this month and 10-year notes are heading toward a 0.91% decrease.
Overnight funding markets were stable on Tuesday, indicating that the Fed has offset any potential year-end funding squeeze.
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