U.S. government bonds are acting more like equities than any time since before the credit crisis, makingTreasuries a hidden risk to investors becalmed by the prospect of the Federal Reserve prolonging stimulus into 2014.
Ten-year Treasuries are moving 0.024% for every one-percent change in the Standard & Poor’s 500 Index in the same direction, the first time that’s happened since July 2007, based on a risk measure known as beta. Prior to this month, the gauge averaged minus 0.12 over the past decade, meaning that bonds have historically moved in the opposite direction.
Treasuries are rising along with stocks as economists say the Fed will keep suppressing borrowing costs to support the world’s largest economy after a 16-day government shutdown slowed growth. While government debt was a haven as the U.S. endured the worst recession in seven decades, primary dealers such as Barclays Plc and Goldman Sachs Group Inc. say the gains this month show the Fed’s $85 billion of monthly bond purchases are masking the risk of owning fixed-income securities as the recovery in America takes hold.
“Treasuries are just not worth the risk,” Thomas Higgins, the Boston-based global macro strategist at Standish Mellon Asset Management Co., which oversees $167 billion of fixed- income investments, said in a telephone interview on Oct. 23. “The economy is certainly not going gangbusters, but the Fed will step away at some point, and that will remove one of the forces of lower yields.”
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