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Bonds rally, but caution remains

10:34 AM, Jan 17, 2014   |    comments
(Photo: Stan Honda, AFP/Getty Images)
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NEW YORK - 2014 is supposed to be the year prices on long-term U.S. bonds finally start to crumble under the weight of a better economy and fewer asset purchases from the Federal Reserve.

But the bond sell-off has yet to materialize. The price of the 10-year Treasury note has been rising in 2014. And the yield, which moves in the opposite direction and ended 2013 at 3.03%, has moved down, not up.

The 10-year note yield stands at 2.84% as of Friday morning trading.

What gives? Are long-term bonds worth investing in again, despite Wall Street forecasts of declining bond prices this year?

The trigger for the renewed appetite for long-term U.S. bonds was the weak December jobs report. Last Friday, the government reported that the economy generated a paltry 74,000 jobs in the final month of 2013, far below the 200,000 expected by Wall Street. That day, the yield on the 10-year note suffered a big drop, falling to 2.86% from 2.96%. The reason for investors' renewed fondness for bonds: a fear that the jobs report is signaling the economy might be weaker than folks think.

Fast-forward to Thursday, when earnings from banks did little to excite bulls. Goldman Sachs earned $1 dollar less per share than a year ago, and Citigroup missed its earnings-per-share estimate by 16 cents. Is the recent rally in bonds signaling that it's safe to jump back in?

"No," says Benjamin Sullivan, a portfolio manager at Palisades Hudson Financial Group. "Rates are still too low and risks too high to invest in longer-term bonds."

(Copyright © 2014 USA TODAY)

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