The sudden slowdown in US inflation has left Treasuries at the cheapest levels in almost two years, aiding the Federal Reserve's efforts to tamp down long-term borrowing costs while the economy improves.Yields on 10-year notes, the benchmark measure for everything from home loans to corporate bonds, reached an 11- month high of 2.08 per cent on March 8. The securities pay interest 0.88 per centage point higher than the personal consumption expenditures index deflator, the Fed's favoured inflation gauge, the widest gap since May 2011. Growth in so-called real yields is what Fed Chairman Ben S Bernanke needs to persuade bond investors that he has inflation under control, even after pumping more than $2.5 trillion into the economy to spur growth and bring down the jobless rate. Jeffrey Gundlach, whose $39.5-billion DoubleLine Total Return Bond Fund beat 97 per cent of its peers last year in part by avoiding US government debt, said on March 5 that "relative value has swung more to the favour" of Treasuries.

Source - http://www.business-standard.com