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(Bloomberg) — U.S. government bonds are losing their advantage over their peers.
Ten-year Treasuries yielded 1 percentage point more than the average for Group of Seven countries, with the premium dropping from 1.2 percentage points as recently as March 12. Treasuries rose and yields fell Tuesday as a report showed inflation is holding below the Federal Reserve’s 2 percent target, increasing speculation the central bank won’t rush to raise interest rates. “I’m bearish on Treasuries now,” said Kim Youngsung, the head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which has the equivalent of $13.6 billion in assets. “If yields go up later, I’m going to buy.”The benchmark U.S. 10-year yield was little changed at 1.88 percent at 10:43 a.m. Tokyo time, according to Bloomberg Bond Trader data. It has dropped from 2.75 percent a year ago. Kim said he would like to buy if yields rise to 2.5 percent or more. The Treasury premium over German bunds has narrowed to 1.64 percentage points from 1.90 points earlier this month. Investors are questioning the strength of the U.S. economy after the Federal Reserve lowered its estimates for interest rates and growth last week. The cost of living in the U.S. climbed 0.2 percent in February, government data showed Tuesday. Prices were unchanged from a year earlier. Government debt yields around the world are approaching record lows as the Fed holds its main interest rate near zero and central banks in Europe and Japan buy bonds to pump money into their economies as they try to head off deflation. The yield for the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index has fallen to about 1.1 percent as of Tuesday from 1.33 percent at the end of last year. It was 1.08 percent on Feb. 2, the record low based on data starting in 1996.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda, Nicholas Reynolds