Back in February, traders on the floor of Royal Bank of Scotland in Connecticut gasped in shock at their screens. What had been expected to be a difficult sale of US government debt instead attracted record demand, led by foreign investors.
The strength of buyer appetite in that $24bn auction of 10-year Treasury paper produced a result that many would ignore to their great cost. As 2011 draws to a close, one thing is becoming clear: against a backdrop of an escalating crisis in the eurozone and lacklustre American growth, buying boring US government bonds has been the right call for investors in search of a safe haven.
The strong performance of Treasury debt this year, with gains of 30 per cent for owners of long-term bonds alone, has left plenty of smart investors with egg on their faces. While there were a host of perfectly sound reasons to start 2011 with a negative view on the bond market, the relentless decline in Treasury yields and rise in prices has compelled many to reverse course and become buyers.