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Death of Bond Bull Market Exaggerated as Volatility Signals Calm

Even though Bill Gross declared an end of the bull market, he doesn't foresee dramatic losses.

By Charlotte Ryan

(Bloomberg) --U.S. government bonds have slid this week, yet fears of a market rout seem overblown.

The climb in Treasury yields has led Janus fund manager Bill Gross to declare the end of the bull market, but he doesn’t foresee dramatic losses. Volatility remains near record lows, according to three-month options on 10-year Treasury futures, suggesting investors aren’t worried about big price moves in either direction. That contrasts with the jump in volatility seen during the “taper tantrum” of 2013 when Treasury yields spiked as Ben Bernanke said the Federal Reserve was considering reducing its balance sheet.

“We’re simply not at the point when we’re looking over our shoulder once an hour to see what’s coming at us next,” said Jim Vogel, executive vice president at FTN Financial Capital Markets. “We’ve absorbed a number of surprising news developments and markets have responded appropriately and rationally.”

A return of 2013’s famous taper tantrum is unlikely as both monetary policy and regulatory policy are better understood and implemented now, according to Vogel. While a report that China was said to be cooling on the U.S. securities challenged the market’s confidence briefly on Wednesday, there is still a consensus among investors that “conditions to the extent they change are going to be slow,” he said.

Even Gross thinks a bear market will be a “mild one”, saying in a Bloomberg Radio interview that he doesn’t see the market headed for an “investment Armageddon.” Annual returns are set to remain marginally positive with returns of zero to one percent for most bond portfolios, with yields set to end the year at 2.7 percent, he said in an investment outlook published Thursday.

The yield on U.S. 10-year government bonds rose one basis point to 2.55 percent as of 7:10 a.m. in New York on Friday, taking the total weekly gain to seven basis points. Investors will be looking ahead for direction to the U.S. inflation report, after weaker-than-expected producer prices on Thursday.

 
--With assistance from Sid Verma and Tanvir Sandhu.To contact the reporter on this story: Charlotte Ryan in London at [email protected] To contact the editors responsible for this story: Ven Ram at [email protected] Neil Chatterjee
 

 

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