Treasuries rose, with 30-year bond yields reaching the lowest level in nine months, as the simmering conflict between Russia and Ukraine led investors to seek a haven in government securities.
Benchmark 10-year note yields fell for a fifth day as President Barack Obama discussed a possible expansion of sanctions with European leaders after U.S. Secretary of State John Kerry said Russian President Vladimir Putin is running out of time to ease tensions in Ukraine. A rally in 30-year bonds has pushed returns past 10 percent in 2014, the best start to a year in at least two and a half decades.
“Things are heating up on a geopolitical level and that fear of heightened tensions from Ukraine is driving the Treasury market higher,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “With the absence of incredible data, yields should stay low in a range as the market waits to see how the political issues play out.”
Thirty-year yields fell one basis point, or 0.01 percentage point, to 3.44 percent at 5 p.m. New York time, according to Bloomberg Bond Trader prices. The yield reached the lowest level since July 3 and has fallen from this year’s high of 3.97 percent in January.
Benchmark 10-year note yields declined two basis points to 2.66 percent. The 2.75 percent security due in February 2024 rose 5/32, or $1.56 per $1,000 face amount, to 100 23/32.
“The Ukraine issues continue to stoke the safety bid as it’s apparent that Putin is not backing off in any way, and as U.S. rhetoric gets stronger,” said Thomas di Galoma, head of fixed income rates at ED&F Man Capital Markets in New York. “The market has been on high alert, and no one wants to be without safe assets headed into the weekend.”
Thirty-year debt has gained 10.3 percent from Dec. 31 through yesterday, the most for the period based on Bank of America Merrill Lynch data that go back to 1988. The broad market rose 2.1 percent and the Standard & Poor’s 500 Index returned 2.3 percent.
While bonds gained on the outlook for slow inflation, shorter-term notes have lagged behind on speculation the Federal Reserve will raise interest rates at some point next year. The difference between two- and 30-year yields narrowed to 3.01 percentage points, the least since June.
Real yields on 30-year notes have fallen about a percentage point since November to 1.94 percent, the lowest level since August, according to data compiled by Bloomberg.
First quarter growth in the economy was 1.2 percent at an annual rate, hampered by a colder-than-average winter, and less than half the 2.6 percent from the previous quarter, the Labor department will report on April 30, according to economists surveyed by Bloomberg. The core personal consumption expenditure index will slow to 1.2 percent at an annual rate, from 1.3 percent the previous quarter, according to a separate survey.
“The geopolitical news combined with the fact that inflation is still low and the Fed has moved up the tightening cycle, benefits the long-dated bonds, and that’s why they have outperformed and the curve has flattened,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “Growth will pick up, but not enough to stoke inflation.”
The Fed’s next meeting is April 29-30. Policy makers will continue to phase out the bond-purchase program they have used to support the economy, according to another Bloomberg survey of analysts. Officials have kept the target for overnight bank lending in a range of zero to 0.25 percent since December 2008.
Futures prices put the likelihood the Fed will start raising borrowing costs in June 2015 at 47 percent, compared with 63 percent a month earlier, based on trading on the CME Group Inc.’s exchange.
The Treasury will auction $15 billion in two-year floating rate notes April 29. That was the size of the initial offering of the securities in January and an increase of $2 billion compared with the previous two offerings.
To contact the reporter on this story: Cordell Eddings in New York at email@example.com