Better than oil, gold or stocks, the best place for investors last year was US government debt. Not even a downgrade of the US’ “AAA” rating and spiraling public deficits stopped a rally in US Treasuries, which were the best-performing major asset class of the year.
Benchmark 10-year Treasuries returned nearly 17 percent last year, their largest gain since 2008. Other top performers, such as gold and oil, finished the year with gains of about 10 percent and 8 percent respectively.
World stocks have lost more than 9 percent for the year, although a steady flow of encouraging US economic data allowed the S&P 500 to erase losses and close practically where it started last year.
Growing fears about the eurozone debt crisis, combined with a pledge by the US Federal Reserve to keep interest rates low through next year, made the appeal of Treasuries irresistible for investors.
Some, like Pacific Investment Management Co manager Bill Gross, who runs the world’s largest bond fund, were forced to abandon heavy bets against US government-related debt halfway into last year as it became clear the Treasuries rally was not going away any time soon.
“We started the year with a 10-year yield of 3.3 percent and a nearly unanimous view that interest rates had nowhere to go but up,” Morgan Keegan fixed income capital markets president Kevin Giddis said.
“It looks like we will close the year with a 10-year yield in the neighborhood of 1.88 percent and a nearly unanimous view that interest rates have nowhere to go but up,” he added, stressing that he does not share that view. “Count me among the Treasury market bulls for 2012.”
Yields on benchmark 10-year Treasuries were at 1.876 percent on Friday, which was well below the psychologically important level of 2 percent.
Among other top-performing assets, gold traded at US$1,564.60 an ounce, up 10.2 percent last year — its 11th consecutive year of gains.
Gold’s strong performance came despite a sell-off in the past few weeks, when tight liquidity in the eurozone forced many investors to sell the metal to meet their financial obligations.
US crude oil prices ended the year with gains of 8.2 percent, at US$98.83 per barrel, as instability in oil producing countries such as Libya eclipsed concerns about Europe’s crisis.
Worries about the fallout from the eurozone debt crisis weighed on financial markets last year and are expected to continue to pressure stocks and the euro into this year.
The MSCI All-Country World index finished the year with losses of 9.5 percent, despite a gain of 0.3 percent on Friday.
On Wall Street, however, the Dow Jones rose 5.6 percent for the year, while the broader S&P 500 ended practically flat.
“We’ve had some big, sharp moves ... and now we’re pretty much flat” for the year, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “It’s disturbing, and I think most people are predicting it’s going to be the same next year. Not exactly a fun market to trade, but it is what it is.”
On Friday, the Dow Jones industrial average fell 69.48 points, or 0.57 percent, to 12,217.56, while the Standard & Poor’s 500 Index lost 5.41 points, or 0.43 percent, to 1,257.60. The NASDAQ Composite Index ended down 8.59 points, or 0.33 percent, at 2,605.15.
In Europe, the FTSEurofirst 300 index rose 0.87 percent, trimming losses in the year to 10.8 percent.