NEW YORK — The U.S. 30-year bond, one of the Treasury market's most reliable performers this year, may continue its winning streak as Federal Reserve policy quells inflation and the Treasury keeps buying back debt, investors said Friday.
"There's more rally ahead," said Paul Van Kampen, who favors bonds among the $1 billion of debt he oversees at NCM Capital Management Group Inc. in Durham, N.C.
Thirty-year Treasury bonds have returned 13.2 percent so far this year including reinvested dividends, far outshining the gains of 6.4 percent or less on benchmark U.S. bills and notes with lower maturities.
Bonds rounded out the week with 30-year yields at 5.78 percent, near their lowest in more than three months, after reports Friday and earlier in the week pointed to cooling inflation and reduced consumer spending. Federal Reserve Chairman Alan Greenspan also reiterated in remarks to a Congressional committee Tuesday that the economy is slowing to a pace that reduces the risk of faster inflation.
While analysts continue to debate whether the economy's strength will prompt the Fed to raise interest rates much more after six increases since June 1999, bullish investors see gains for bonds — the most vulnerable securities to faster inflation — even if they do. That's because any increase would likely bolster investor confidence that the Fed will succeed in keeping a lid on prices for goods and services.
"As long as the market believes the Fed won't let inflation get out of hand," it doesn't matter if officials raise rates, said Susan Nason, who oversees $7 billion as head of government bonds at Federated Investors in Pittsburgh.