Wall Street whipped by resilient treasuries

BETTING against US government debt this year is turning out to be a fool's errand. Just ask Wall Street's biggest bond dealers. While the losses that their economists predicted have yet to materialise, JPMorgan Chase & Co, Citigroup Inc and the 20 other firms that trade with the Federal Reserve began wagering on a treasuries selloff last month for the first time since 2011. The strategy was upended as Fed chair Janet Yellen signalled that she wasn't in a rush to lift interest rates, two weeks after suggesting the opposite at the bank's March 19 meeting.

The surprising resilience of treasuries has investors re-calibrating forecasts for higher borrowing costs as lacklustre job growth and emerging-market turmoil push yields towards 2014 lows. That has also made the business of trading bonds, once more predictable for dealers when the Fed was buying trillions of dollars of debt to spur the economy, less profitable as new rules limit the risks they can take with their own money.

"You have an uncertain Fed, an uncertain direction of the economy and you've got rates moving," Mark MacQueen, a partner at Sage Advisory Services Ltd, which oversees US$10 billion, said by telephone from Austin, Texas. In the past, "calling the direction of the market and what you should be doing in it was a lot easier than it is today, particularly for the dealers".