U.S. Federal Reserve Chair Janet Yellen, speaks during a session on "shaping the future of the marcoeconomic policy-mix" at the International Symposium of the Banque de France in Paris, Friday, Nov. 7, 2014. (AP Photo/Michel Euler)
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Government bonds due in 30 years, the most vulnerable to losses when growth picks up and inflation accelerates, have returned more than 20 percent this year versus 2.9 percent for five-year Treasuries.The five-year inflation outlook starting in 2019 has fallen a half-percentage point this year and reached a three-year low of 2.14 percent last month, based on a bond metric known as the five-year, five-year forward break-even rate.While the strongest six months of U.S. economic growth in a decade has futures traders pricing in the prospect the Fed will raise rates within a year, lackluster wage gains, weaker growth abroad and slumping energy prices caused investors to trim their expectations for how much consumer prices can rise.With the Fed's preferred gauge of inflation falling short of its target for 29 straight months, bond yields now imply consumer prices in the five-year span starting November 2019 will rise an average of 2.17 percent per year. Investors have responded by seeking out longer-term Treasuries to reap the biggest inflation-adjusted returns and shifting way from the shortest-term notes as they anticipate the end of the Fed's six-year-long policy of near-zero rates.
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