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(Bloomberg) — Treasuries were poised to outperform U.S. shares this month — even after the Dow Jones Industrial Average rallied to a record. U.S. government securities have returned 0.5 percent through Monday, according to data compiled by Bloomberg. The Dow Jones index couldn’t hold its gains, falling 0.8 percent for the month including reinvested dividends, the data show. The divergence reflects demand for safety amid mixed U.S. economic data and a falling inflation rate. While Federal Reserve Chair Janet Yellen said last week she expects the central bank will raise interest rates in 2015, she also said subsequent increases will be gradual.
“There is still a risk of deflation,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management, South Korea’s largest money manager with $112.5 billion in assets. “Yellen has been more dovish than the market expected. The timing of the first hike will be postponed until the end of the year.” The benchmark U.S. 10-year yield was little changed at 1.95 percent as of 10:19 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2 percent note due in February 2025 was 100 13/32. The Dow Jones average closed at 17,976.31 Monday in New York after rising to an all-time high of 18,288.63 on March 2. The Standard & Poor’s 500 Index dropped 0.7 percent this month as of Monday, after climbing to a record in February. Treasuries also lured investors as bond yields in Japan were near zero and some of those in Europe became negative. The labor market has been the bright spot in the U.S. economy, with the nation adding more than 200,000 jobs each month for a year. Yet retail sales have fallen for three straight months and housing starts plummeted in February by the most since 2011.
The Fed’s preferred gauge of inflation rose 0.3 percent in February from a year earlier, versus the central bank’s target of 2 percent. Policy makers will raise U.S. interest rates in about 7 1/2 months, based on a Morgan Stanley index. Two weeks ago, the figure was closer to six months.

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 Nicholas Reynolds, Naoto Hosoda