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September 26, 2011 at 08:43 AM
Call Ben Bernanke crazy, but if he is, bond market returns mean it’s like a fox. Beating even the 24.4% gain in 2008, actions taken by the Federal Reserve have resulted in the biggest bond rally since the mid-90s.
“Betting on Ben Bernanke has been the most profitable trade for government bond investors in 16 years, defying lawmakers in the United States and abroad who said the Federal Reserve chairman’s policies would lead to runaway inflation and the dollar’s debasement,” Bloomberg reported Monday, noting in particular the outperformance of bonds with maturities of 10 years or longer. “Not since 1995, when the securities soared 30.7%, have investors done so well owning longer-dated U.S. government debt.”
In the wake of “Operation Twist” announced last week, in which the Federal Reserve said they would buy $400 billion of longer-term U.S. Treasury securities to put downward pressure on longer-term interest rates, yields have fallen to record lows.
Mitchell Stapley, chief fixed-income officer for Fifth Third Asset Management, told Bloomberg that bonds were producing “monster” gains.
