Treasuries rose for a fourth day, sending yields on benchmark 10-year notes to a one-month low, as a renewal of financial stress in European financial markets sent investors to the safety of U.S. government securities.
U.S. debt gained as Portuguese bonds tumbled with investor concern deepening due to missed debt payments by a company linked to the Iberian nation’s second-largest bank. Greece raised 1.5 billion euros ($2.04 billion) in a debt sale that fell short of analyst estimates on size and yield. The U.S. is due to sell $13 billion of 30-year debt.
“With Europe appearing to weaken again, it brings into question whether the U.S. can be an island of growth by itself,” said Charles Comiskey, New York-based head of Treasury trading at Bank of Nova Scotia in New York, one of 22 primary dealers that trade directly with the Federal Reserve. “It puts more uncertainty and a slight flight-to-quality bid in the marketplace.”
The benchmark 10-year yield declined three basis points, or 0.03 percentage point, to 2.52 percent at 11:45 a.m. New York time, reaching the lowest since June 2, according to Bloomberg Bond Trader data. The price of the 2.5 percent note due in May 2024 rose 1/4, or $2.50 per $1,000 face amount, to 99 25/32. The four-day run of gains is the longest since the period ending May 2.
The yield on 30-year bonds dropped two basis points to 3.35 percent, touching the lowest since May 30.
The U.S. 30-year bonds to be auctioned today traded at 3.36 percent in pre-auction trading, according to Bloomberg data. The yield would be the lowest at an auction of the security since May 2013. At the previous 30-year sale in June, investors bid for 2.69 times the amount offered, the highest level since February 2013.
The sale follows a $21 billion auction of 10-year notes yesterday and a $27 billion offering of three-year debt the day before.
The amount of Treasuries traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose to $379.2 billion yesterday, the highest since June 19.
The difference between U.S. five- and 30-year yields was 1.72 percentage points. It contracted to 1.64 percentage points yesterday, the narrowest since March 2009, as investors anticipate interest rates will rise in a slow-growth and low-inflation environment.
Portugal’s central bank said Banco Espirito Santo SA, the nation’s second-largest lender, is protected after its parent missed debt payments. Moody’s Investors Service downgraded a company in the group citing a lack of transparency and links to other companies.
“There are issues in Portugal that are getting worked through -- it’s translated into buying bunds, gilts and Treasuries,” said Dan Mulholland, head of Treasury trading at BNY Mellon Capital Markets in New York.
The yield on Portugal’s 10-year government debt rose 18 basis points to 3.95 percent, the highest level since May. Greek five-year notes fell for a third day, pushing up the yield by 12 basis points to 4.34 percent.
German 10-year yields fell three basis points to 1.20 percent, reaching the least since May 2013. Ten-year gilt yields fell five basis points to 2.61 percent, touching the lowest since June 2.
U.S. bonds were also underpinned by the release yesterday of minutes of the Fed’s June meeting, which eased concern that plans for higher borrowing costs will be brought forward.
Minutes showed officials have moved closer to deciding on the main tool they will use to tighten monetary policy when the time comes, most likely next year, and agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the officials said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.
Fed Chair Janet Yellen is scheduled to testify before the Senate Banking Committee on July 15 and the House Committee on Financial Services the following day.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was at 2.25 percentage points. The average for the past decade is 2.20.
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