NEW YORK (Reuters) - Bond investors are the most bullish about owning U.S. longer-dated government debt than at anytime since June 2016, prompted by signs of mild inflation despite a solid labor market and steady economic growth, a J.P. Morgan survey showed on Tuesday.
The U.S. economy grew 3.2% in the first three months of 2019, much stronger than analysts forecast thanks to a jump in inventory and exports that is expected to fade in the coming months, the government said on Friday.
Moreover, the core rate of personal consumption expenditure, the Fed’s preferred inflation gauge, grew by 1.7% in the last quarter on a year-over-year basis, slower than the 1.9% pace in the previous quarter.
This economic snapshot supported the notion the Federal Reserve may consider leaving interest rates unchanged in 2019 and perhaps beyond until inflation accelerates, analysts said.
Tame inflation and the dovish turn by the Fed earlier this year have increased the appeal of holding longer-dated Treasuries, they said.
The share of investors who said they were “long” or held more longer-dated Treasuries than their portfolio benchmarks exceeded those investors who said they were “short” or held fewer longer-term government debt issues than their benchmarks by 17 percentage points on Monday, up from 4 percentage points the week before, J.P. Morgan said.
In midday Tuesday trading, the yields on benchmark 10-year Treasury notes were 2.5144%, down from a four-week peak at 2.6140% reached two weeks earlier.
(Graphic: Investors positions in longer-dated U.S. Treasuries - tmsnrt.rs/2V9OjHR)
Reporting by Richard Leong; Editing by Tom Brown