Treasury 30-Year Yields Poised for Biggest 5-Day Drop Since 2008
Treasury Yields Trade at Almost Record Lows
Scott Eells/Bloomberg
Yields on 30-year bonds fell to 3.39 percent on August 19, while the yield on 10-year Treasuries fell below 2 percent for the first time on August 18, hitting a record 1.9735 percent.
Yields on 30-year bonds fell to 3.39 percent on August 19, while the yield on 10-year Treasuries fell below 2 percent for the first time on August 18, hitting a record 1.9735 percent. Photographer: Scott Eells/Bloomberg
Aug. 19 (Bloomberg) -- Francis Lun, managing director at Lyncean Holdings Ltd., an investment holding company in Hong Kong, talks about the global economy, financial markets, and his investment strategy. Fortescue Metals Group Ltd., Australia’s third-biggest producer of iron ore, said full-year profit rose 76 percent, less than analysts estimated, as sales and prices surged. Lun speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Excerpts. Source: Bloomberg)
Aug. 19 (Bloomberg) -- Ty Anderson, global head of high-yield strategies at DB Advisors, talks about the high-yield bond market. He speaks with Lisa Murphy on Bloomberg Television' "Fast Forward." (Source: Bloomberg)
Aug. 19 (Bloomberg) -- Michael Darda, chief economist at MKM Partners LP, talks about the prospects for the U.S. economy, Treasury bond market and Federal Reserve monetary policy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Aug. 19 (Bloomberg) -- Ira Jersey, an interest-rate strategist at Credit Suisse Group AG, talks about the U.S. economy, Federal Reserve policy and the bond market. He speaks with Lisa Murphy on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Aug. 19 (Bloomberg) -- Jason Brady, a managing director at Santa Fe, New Mexico-based Thornburg Investment Management Inc., talks about financial markets and the outlook for the U.S. economy. Brady speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Treasuries Rise on Growth Concern
Brendan Smialowski/Bloomberg
A statue of Albert Gallatin, a long-serving U.S. secretary of the Treasury, stands in front of the U.S. Treasury building in Washington.
A statue of Albert Gallatin, a long-serving U.S. secretary of the Treasury, stands in front of the U.S. Treasury building in Washington. Photographer: Brendan Smialowski/Bloomberg
Treasury 30-year bond yields had their biggest weekly drop since the depths of the financial crisis in December 2008 on concern the U.S. economic recovery is stalling and Europe’s sovereign-debt crisis is getting worse.
Yields on five-, seven- and 10-year notes fluctuated a day after plunging to historic lows. Government bonds have rallied since the Federal Reserve pledged this month to keep its target lending rate at virtually zero until at least mid-2013 and Standard & Poor’s lowered the top U.S. credit rating for the first time.
“The pace at which the money keeps flowing into the back end is alarming,” said Sean Murphy, a trader in New York at Societe Generale, one of the 20 primary dealers that trade directly with the Fed. “It’s the volatility, uncertainty and comments made by the Fed that rates will be on hold.”
The yield on the 10-year note was unchanged at 2.062 percent at 5:14 p.m. in New York, according to Bloomberg Bond Trader prices. The 2.125 percent securities due in August 2021 remained at 100 18/32, the same price as yesterday. The yields dropped as much as six basis points and rose as much as seven basis points after sliding yesterday to a record low 1.9735 percent.
Treasuries have returned 2.2 percent since S&P lowered the U.S. credit rating for the first time on Aug. 5 and are up 3.3 percent this month, the most since December 2008, according to Bank of America Merrill Lynch’s Treasury Master Index. The firm’s Global Government Bond Index, which excludes the U.S., has increased 2.2 percent in August.
Treasury Yields
A gain in 30-year bonds pushed yields down three basis points to 3.39 percent. They had a weekly drop of 34 basis points, the most since tumbling 49 basis points during the five days ended Dec. 19, 2008. Yields on five- and seven-year notes were little changed today after falling yesterday to record lows of 0.79 percent and 1.31 percent.
The Treasury will sell $35 billion in two-year notes, the same amount of five-year debt and $29 billion of seven-year notes in auctions beginning Aug. 23. The amounts are the same as last month’s offerings.
Bank of America Merrill Lynch’s MOVE index, which measures price swings in Treasuries based on prices of over-the-counter options maturing in two- to 30 years, rose to 100.30, up from 87.80 on Aug. 17.
“It’s a choppy market,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “There’s been a fair amount of price volatility overnight with little information expected today to guide trading direction.”
Fourth Weekly Gain
Benchmark 10-year notes had a fourth weekly gain after reports yesterday showed manufacturing in the Philadelphia region unexpectedly contracted in August by the most in more than two years and consumer prices excluding food and energy rose last month at the slowest pace since April.
U.S. regulators are stepping up scrutiny of American operations of Europe’s largest banks on concern the euro region’s sovereign-debt crisis may lead to funding problems, the Wall Street Journal reported yesterday. The New York Fed has been holding talks with the lenders and sought information about their access to funds, said the newspaper, citing people it didn’t identify.
New York Fed President William C. Dudley said in response to audience questions yesterday after an address in Newark, New Jersey, that the central bank always keeps an eye on the performance of U.S. and foreign banks, not monitoring one group more than the other.
‘At Worst, Mixed’
Dudley said today in remarks in Lyndhurst, New Jersey, that America’s economic performance is “at worst, mixed,” with negative news offset by loosening credit, firmer retail sales and stronger bank balance sheets.
Cleveland Fed President Sandra Pianalto said today in Columbus, Ohio, that weak economic growth warranted a pledge to hold the target rate for overnight lending between banks at zero to 0.25 percent until at least the middle of 2013.
“My latest forecast is for the economy to grow at a rate of about 2 percent this year, and about 3 percent in each of the next two years,” she said. “Our economy has to grow at about a 2 1/2 percent clip just to absorb new labor force entrants and to keep the unemployment rate from rising.”
Fed Chairman Ben S. Bernanke speaks at an economic conference next week in Jackson Hole, Wyoming.
The European Commission said it may present draft legislation on euro bonds to help contain the debt crisis when completing a report on the feasibility of common debt sales. The commission, the EU’s regulatory arm in Brussels, earlier this year opposed such a step because of German-led objections.
European Proposals
“The report will, if appropriate, be accompanied by legislative proposals,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a written response to a European Parliament question.
The previous record low for the 10-year note yield was set on Aug. 9 as the Fed committed to leaving benchmark rates unchanged after S&P cut the U.S. credit rating to AA+ from AAA four days earlier, citing the political failure to cut U.S. deficits. Before that, the 10-year yield slid to a record in December 2008 amid the worst economy since World War II, credit- market losses exceeding $1 trillion and the biggest drop in the S&P 500 Index since 1931.
A 3.3 percent return on Treasuries in August would be the biggest since U.S. debt increased 3.5 percent during the financial crisis in December 2008.
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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