The benchmark 10-year Treasury note closed 2012 at the lowest yield level in decades, even though yields rose slightly following President Obama’s news conference announcement of a possible agreement on a plan to avoid the fiscal cliff. The 10-year note closed out the year with a yield of 1.76%, the lowest level since at least 1962 according to a report at MarketWatch.

For the year, 5-year note yields are up just 1 basis point to 0.73% and 30-year bond yields are up 8 basis points at 2.95%. The five-year notes closed the year at their lowest level since 1986.

Regardless of the outcome the current fiscal negotiations, economic growth is expected to continue to be slow next year in the U.S. and may touch recessionary levels in the eurozone. Coupled with the Fed’s promise to continue easing, the bond market could be in for another decent year. Treasury bonds of all maturities returned 2.3% in 2012.

The return on the benchmark 10-year notes totaled 2.86% for the year, while corporate bonds returned 10.6% and high-yield bond returns rose 15.6%. Municipal bonds gained 7.2% in 2012 for their fourth consecutive year of gains.

Paul Ausick

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