Treasuries rose for a third day as economic reports showed growth slowing in the world’s two largest economies, boosting the allure of U.S. government debt.
Benchmark 10-year note yields declined to the lowest level in four months as Chinese economic growth lost momentum in the first quarter, and as measures of manufacturing in the New York region and U.S. homebuilder confidence missed forecasts. Stocks and gold fell. Yields extended drops after explosions rocked the finish-line area of the Boston Marathon, killing at least two, spurring demand for the safety of U.S. government debt.
“The decline in rates is largely factoring in a soft U.S and global economic market -- 1.7 percent yields tell you global growth will be modest, at best,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. “Risk assets have run too far too fast, and a consolidation is in the cards and could continue.”
The 10-year note yield fell four basis points, or 0.04 percentage point, to 1.68 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices, after touching 1.67 percent, the lowest since Dec. 12. The price of the 2 percent note due in February 2023 rose 3/8, or $3.75 per $1,000 face value, to 102 28/32.
Yields on 30-year bonds declined six basis points to 2.86 percent.
The Standard & Poor’s 500 Index of stocks dropped 2.3 percent after setting an all-time high on April 11. Gold futures slumped as much as 9.7 percent.
“The explosion concerns are giving Treasuries a boost and weighing on the stock market -- until we get news on exactly what this is, you will see people jumping to buy safe assets on a quiet afternoon,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The threat of a terrorist attack hasn’t been something we’ve had to be concerned about, but if it turns out to be, then we could see more flight to quality.”
Treasuries are the most expensive this year, according to a model that includes expectations for interest rates, growth and inflation. The 10-year term premium, a model that includes expectations for interest rates, growth and inflation, traded at minus 0.83 percent, the lowest level since Dec. 13. Negative readings indicate investors are willing to accept yields below what’s considered fair value.
China’s gross domestic product grew 7.7 percent in the first quarter from a year earlier, the National Bureau of Statistics said in Beijing today. The figure is less than 8 percent projected in a Bloomberg survey of analysts and 7.9 percent expansion in the fourth quarter.
The Federal Reserve Bank of New York’s general economic index dropped to 3.1 this month from 9.2 in March. Readings exceeding zero signal expansion in New York, northern New Jersey and southern Connecticut. The median projection of 47 economists surveyed by Bloomberg was 7.
The National Association of Home Builders/Wells Fargo index (SPX) of builder confidence dropped to 42, the lowest since October, from 44 in March, the Washington-based group said today. Economists projected an index of 45, according to the median estimate in a Bloomberg survey. Readings below 50 mean more respondents said conditions were poor.
“We are in a weakening economic environment that is keeping the market well bid,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We’ve had a pretty significant move to higher prices over the past few weeks and digested a lot of supply, and now we are taking a pause around these levels -- we are at the top of the range in prices.”
Treasuries have returned 0.5 percent this year through April 12, according to Bank of America Merrill Lynch indexes. An index of sovereign securities around the world gained 1.2 percent. The MSCI All-Country World Index (MXWD) of stocks gained 8 percent in the same period, including reinvested dividends.
For the first time since the depths of the financial crisis in 2008, mutual funds that target Treasury Inflation-Protected Securities have seen outflows for three straight months, according to Morningstar Inc. (MORN)
Even after the Fed injected more than $2.3 trillion into the financial system since 2008, inflation is under control, bolstering the appeal of bonds while providing the central bank with more scope to provide stimulus as needed to foster the economic recovery. Commodity prices are down and wages have grown just 1.9 percent on average since 2009, below the 3.1
“With such weak labor markets, flat income growth and flat wages, and commodities weak, we just won’t see the inflation that the TIPS market is pricing in,” Dan Heckman, a fixed- income strategist at the U.S. Bank Wealth Management unit of U.S. Bancorp, which manages $110 billion, said in telephone interview April 9.
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