* Yields little changed from Thursday levels
* Treasuries on pace for woeful fourth quarter
* Treasuries lag other bond classes in 2016
By Dion Rabouin
NEW YORK, Dec 30 U.S. Treasuries were little
changed across the curve on Friday in thin pre-holiday trading,
ending a weak fourth quarter and rounding out a year of
surprises with minimal fanfare.
Treasury bonds were the worst performing fixed-income asset
this year by a wide margin, vastly underperforming both U.S.
investment grade and high-yield corporate bonds and federally
backed mortgage securities.
Benchmark 10-year Treasury notes were flat to
yield 2.481 percent, less than 1 basis point changed from their
late Thursday levels.
With only a truncated pre-New Year's session to go, the
fourth quarter was on pace to be the poorest Treasuries have
performed in the history of the Merrill Lynch Treasury index,
with a -4.175 percent return. A comparable measure from
Bloomberg Barclays indexes showed Treasuries on track for their
worst performance since 1980.
The selloff during the year's final quarter was due largely
to the election of Donald Trump as U.S. president, analysts
said, and the expectation of looser fiscal policy and rising
interest rates based on his campaign promises of increased
infrastructure spending and tax cuts.
"The election changed everything," said Bryce Doty, senior
vice president and portfolio manager at Sit Investment
Associates Inc, in Minneapolis. "People went from being fairly
pessimistic on the economy - slow growth, stagnant environment -
to a very pro-business, pro-economic growth (environment).
That's very good for corporate bonds."
Additionally, such an environment is negative for
Treasuries, Doty said.
"Investors required less yield over Treasuries as they
viewed lower-rated corporations as less risky to default, so
Treasuries were left behind," he said. "Treasuries don't offer
much yield, a lot of volatility and are going to do poorly if
the Fed starts raising rates at a quicker pace."
Treasuries showed a less than 1-percent return for all of
2016, according to Merrill Lynch's Treasury index, while U.S.
corporate bonds returned 5.71 percent and high-yield bonds
delivered a 17.44-percent return.
Despite the minimal overall return, analysts described
2016's Treasury market as "crazy," "volatile" and
"From a whole year perspective if I had to classify this
year as something, I would classify 2016 as the year of
surprises," said Jennifer Vail, head of fixed-income research
for US Bank Wealth Management in Portland.
For the year, 10-year Treasury yields rose 30 basis points,
according to Reuters data. Yields on the 10-year note fell to as
low as 1.32 percent after Britain's surprise vote to exit the
European Union and rose to as high as 2.64 percent in the days
following the U.S. election.
"Rates are not significantly changed from this time a year
ago," said Justin Lederer, Treasury analyst and trader at Cantor
Fitzgerald in New York. "But there was a lot of action that took
place in the 366 days."
(Reporting by Dion Rabouin in New York; Editing by Nick