Treasuries rose, pushing 10-year note yields to the lowest levels of the year, as signs of global economic weakness and a renewal of concern that terrorism is increasing in the U.S. fueled demand for the safest assets.
Benchmark yields extended the drop after the FBI said an envelope addressed to President Barack Obama may contain ricin and denied that any arrests had been made in the April 15 Boston Marathon bombings. Stocks declined amid a Dow Jones report that Bundesbank President Jens Weidman said the European Central Bank may cut interest rates if the developments warrant it. Federal Reserve Bank of St. Louis President James Bullard said a further drop in inflation could prompt more bond buying.
“Risk sentiment is for risk-off right now -- it’s hard to see how growth globally will be strong,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, one of 21 primary dealers that deal directly with the Fed. “It’s also because of what’s going on in Boston and what’s going on in Washington. Some of the more current events have accelerated our move.”
The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 1.70 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. It touched 1.67 percent, the lowest since Dec. 12. The 2 percent note due in February 2023 rose 1/4, or $2.50 per $1,000 face amount, to 102 3/4.
“We’re looking at 1.60 percent in the next couple of weeks,” Jersey said of the 10-year yield.
European stocks sank for a fourth day, led by commodity producers, and the Standard & Poor’s 500 Index slid 1.4 percent as industrial metals declined. Copper fell 3 percent while gold rose for a second day after tumbling 9.1 percent on April 15.
“Stocks are coming off because everyone seems to see panic in the central banks when people thought there would be growth,” said Michael Franzese, senior vice president of fixed- income trading at ED&F Man Capital Markets in New York. “This is a reversal of the beginning of the year when people thought higher rates were on the horizon, but there could be a rate cut in Europe. Treasuries are following bunds higher.”
German 10-year bund yields fell five basis points to 1.23 percent.
U.S. government securities returned 0.8 percent in April through yesterday, according to Bank of America Merrill Lynch index data, exceeding the gain in the S&P 500 Index for the first time since November.
Treasury volatility as measured by Bank of America Merrill Lynch’s MOVE index was at 51.97 basis points today, just up from 51.93 basis points yesterday, the lowest level since Dec. 11. The gauge, which tracks the outlook for swings in U.S. government debt rates, has averaged 63.7 basis points in the past year.
The spread between yields on 10-year Treasuries and similar-maturity TIPS, a gauge of inflation expectations known as the break-even rate, shrank to as little as 2.35 percentage points today, the narrowest since Nov. 28.
The Fed’s Bullard said U.S. inflation has fallen too far below the central bank’s 2 percent goal and a further drop could prompt increased asset purchases.
“Inflation should be closer to target than it is and we should defend the inflation target from the low side,” Bullard told reporters today after a speech in New York. “If it doesn’t start to turn around here soon, I think we’ll have to rethink where we are in our policy.”
The U.S. will sell $18 billion of inflation-linked debt tomorrow, following data yesterday that showed consumer prices unexpectedly declined 0.2 percent in March.
Fed policy makers have maintained purchases of government and mortgage debt at $85 billion a month, including $1.484 billion in Treasuries maturing between February 2036 and August 2042 today, in a bid to spur growth and boost employment.
Applications for jobless benefits rose to 350,000 last week from 346,000 in the previous period, according to a Bloomberg News survey of economists before tomorrow’s Labor Department report. Employers added 88,000 jobs in March, the least in nine months, the department said on April 5.
The index of U.S. leading indicators is forecast to rise 0.1 percent in March, compared with 0.5 percent in February, according to another survey before the figure is released tomorrow.
Treasuries remained higher after the Fed in its latest Beige Book business survey said the U.S. economic expansion remained “moderate” amid gains in manufacturing, housing and autos that offset weakness in defense-related industries in some regions.
“You have some safe-haven support to the market, but the market hasn’t raced higher,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “We’ve moved through 1.7 percent, but not significantly so, which seems to signal that we are at the top of the trading range. Investors should continue to trade the range unless we break out of one side or the other.”
-- With assistance from Cordell Eddings in New York. Editors: Kenneth Pringle, Dave Liedtka
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