Treasuries returned 3% in Q1 which is its best quarterly performance since 2020. In an article for Bloomberg, Liz McCormick and Michael Mackenzie covered some reasons for why this outperformance should continue. 

Three of the major factors are expectations of increased demand from Japan, a weeklong pause in auctions, and strong inflows from institutional and retail investors amid higher rates and wobbles for the banking system. 

The next major, market-moving event will be the March jobs report on Friday. Some analysts see the potential for weakness in Treasuries if there is a strong report regarding wages and jobs. This could undermine of the catalyst behind the Treasury rally - expectations that the Fed’s hiking cycle is nearly over. On the other hand, Treasuries could rally with a weak report.

Demand for Treasuries spiked amid the bank failures last month. As a result, yields for short-term notes tumbled to their lowest levels of the year with the 2-year Treasury yield declining by a 100 basis points. It also led to market expectations of the Fed terminal rate declining, while odds of the next Fed move being a cut rather than a hike, also jumped higher.

Finsum: Treasuries outperformed in Q1 with a major catalyst being bank failures which led to a surge in demand for safe-haven assets.