Treasuries headed for their biggest rally since January in October before a U.S. report economists predict will show consumer-price gains slowed for a third month.
Falling inflation expectations have helped draw investors to U.S. government debt even as the nation’s economy shows signs of improvement. The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 1.91 percentage points. The figure has dropped from this year’s high of 2.31 in January.
“In the U.S., even though they have a good growth rate, they have a really low inflation rate,” said Kim Youngsung, the head of overseas investment in Seoul at the Government Employees Pension Service, which has the equivalent of $3.79 billion in assets. “In the short term, I can’t see any sign that bond yields will go up.” Economic expansion may push yields higher by year-end, he said.
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