The year 2014 was a surprise period for US Treasuries as they rallied along with stocks. Bonds were helped by a stronger dollar and with the prospects of rate hikes by the Federal Reserve, but charts as well as major investment banks project a reversal of that trend in 2015.
Yield on the US 10-year note closed 2014 at 2.173%, down from 3.03% at the end of 2013, and that translated to a 28.4% fall.
Last year's downside was a partial reversal of the 2013 rally which saw a 72% jump from 1.76%. Indications for the next year are for a reversal again, instead of continuing the 2014 trend.
Despite the losses in 2014, the UST 10-year yield has kept the big picture uptrend since July 2012. A look at the chart shows that as long as the 2% support holds, chances of a return towards 3% levels are more likely.
In addition to a rallying dollar, sharper decline in yields in Europe has also increased the demand for Treasurys, analysts said.
The yield on the 10-year German bunds closed 2014 at 0.542%, down from 1.927% at the end of 2013. Similar gilt yield in UK dropped to 1.759% from 3.039%.
Charts show that the US 10-year is unlikely to fall significantly below 2% in the very near future. Even a slight drop below that may not be sustained and 2.3% and 2.47% will be the first two resistance levels. (Please see the chart given below)
Further north, the bond will test yield resistances of 2.7% and 2.8% ahead of a retest of last year's peak of 3.03%. A break of that will open the doors to 3.4%.
The fall in yields this year has forced large global investment banks to lower their yield forecasts for the next year, but they continue to expect strong rebound from current levels.
J P Morgan Chase expects the 10-year US yield to rise to 2.7% at the end of 2015. Bank of America expects 2.75%, and Goldman Sachs Group sees 3%.
Analysts say that lower Treasury bond yields have increased the demand for riskier bonds and stocks as well, with investors seeking more yield.
With next year's move going to be in the opposite direction for Treasuries, related selling pressure may be seen in the riskier assets too.
As per Barclays estimates, municipal bonds have been the best-performing US asset class in 2014 with a total return of 8.97% at the year end. Compared to less than 5% of Treasuries, corporate bonds yielded a total return of 7.39%.