'Lousy year' ahead for Treasuries, warns Wells Fargo unit

MAR 07, 2012
By  Bloomberg
This year will be “lousy” for Treasuries as the growing U.S. economy hurts bonds and supports stocks, according to Wells Capital Management Inc. Ten-year yields may climb to 3.5% this year, James W. Paulsen, chief investment strategist for Wells Capital, wrote in a report that the company distributed Feb. 27. The rate was 1.93% that day in London. “This will prove a lousy year for high-quality bonds,” Mr. Paulsen wrote. “We expect the same renewed confidence which has been pushing the stock market higher this year to also begin pushing bond yields higher.” Treasuries handed investors a 0.5% loss last month as of Feb. 27, according to Bank of America Merrill Lynch indexes, as the U.S. economy showed signs of improvement. An increase in 10-year yields to 3.5% by Dec. 31 would bring a 9.2% loss to an investor who bought Feb. 27, according to data compiled by Bloomberg. The Conference Board Inc.'s Consumer Confidence Index climbed to 70.8 last month after falling to 61.1 in January, from 64.8 in December. An industry report Feb. 27 showed that more Americans than forecast signed contracts to buy previously owned homes in January, indicating that the industry that sparked the last recession is improving.

4.4% RETURN

The U.S. jobless rate fell to 8.3% in January, the lowest level in almost three years, the Labor Department reported Feb. 3. The S&P 500 gained about 4.4% last month after accounting for reinvested dividends. The 2% Treasury due in February 2022 was little changed last week. Investors should “stay overweighted in equities,” according to Wells Capital, which oversees $333 billion and is a unit of Wells Fargo & Co. “We also recommend underweighting "safe haven' investments, including domestic large-caps, the U.S. dollar, high-quality bonds, dividend-emphasized indexes and steady Eddie stock sectors like consumer staples, utilities and health care,” according to the report.

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