Treasuries climbed, pushing 10- and 30-year yields toward the lowest levels of the year, as demand for safety swelled amid the crisis in Ukraine and evidence the economic recovery is faltering from Germany to Australia.
The benchmark 10-year debt pared gains earlier as data showed average weekly claims for U.S. jobless benefits fell to an eight-year low over the past month. European Central Bank President Mario Draghi said heightened geopolitical risks could hurt growth. German two-year yields fell below zero for the first time since May 2013, and Australia’s securities jumped after unemployment surged to a 12-year high.
“The Russian and Ukrainian conflict remains an overhang for the markets,” said Dan Greenhaus, chief global strategist in New York at BTIG LLC. “Rates at these levels are not consistent with what you are seeing in the economy.”
The U.S. 10-year yield dropped six basis points, or 0.06 percentage point, to 2.41 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. It touched 2.4060 percent, the lowest intraday level since May 29’s 2.4006 percent, the least this year. The price of the 2.5 percent security due in May 2024 rose 1/2, or $5 per $1,000 face amount, to 100 3/4.
Thirty-year (USGG30YR) bond yields decreased five basis points to 3.22 percent and touched 3.2183 percent. They reached 3.2167 percent on July 29, the lowest in 2014.
The amount of Treasuries traded through Icap Plc, the largest inter-dealer broker of U.S. government debt, was little changed from yesterday at $303 billion. It climbed on Aug. 1 to $504 billion, the most in three months, and fell Aug. 4 to $197 billion. The daily average volume this year is $327 billion.
Russia banned imports of an array of food goods from the U.S., Canada, Australia and Europe, Prime Minister Dmitry Medvedev said. The nation is embroiled in the worst standoff with the U.S. and its allies since the Cold War over Ukraine, where government troops are cracking down on pro-Russian separatist strongholds in the east.
The tensions are likely to push U.S. yields lower as “the spill-over from Eastern Europe remains a negative for core Europe and is unlikely to be short-term development,” said Richard Gilhooly, an interest-rate strategist at Toronto-Dominion Bank’s TD Securities unit in New York. European “deflationary risks have increased.”
The ECB kept interest rates at record lows and Draghi signaled monetary policy will diverge from the U.S. for an extended period of time, citing the Ukraine conflict and economic conditions.
Policy makers meeting in Frankfurt left the main refinancing rate at 0.15 percent, as predicted in a Bloomberg News survey. The deposit rate and the marginal lending rate remained at minus 0.1 percent and 0.4 percent.
The U.S. Federal Reserve is forecast to raise its benchmark interest-rate target next year for the first time since 2006 as the nation’s economy improves.
Credit Suisse Group AG, one of the 22 primary dealers that trade with the Fed, moved its forecast for when 10-year yields will trade at 3.75 percent to late next year. Low global rates relative to the U.S. are having a damping effect on Treasury yields, Credit Suisse’s Carl Lantz in New York and Helen Haworth in London wrote in a client note. The firm had forecast the level would be reached by mid-2015.
“Though the evolution of the macro backdrop has become increasingly supportive to higher U.S. yields, low rates elsewhere have made the U.S. appear increasingly attractive on a relative basis,” Lantz and Haworth wrote.
The yield premium that benchmark U.S. 10-year notes offer over Group of Seven counterparts was 66 basis points, versus a 48 basis-point average over the past year. It reached 78 basis points on July 31, the most since 2007.
Economists and analysts surveyed by Bloomberg forecast 10-year notes will yield 3.61 percent at the end of 2015.
First-time claims for U.S. unemployment benefits unexpectedly fell last week by 14,000 to 289,000, Labor Department data showed. Economists surveyed by Bloomberg called for a gain to 304,000. The four-week average, a less volatile figure, dropped to 293,500, the lowest since February 2006.
“The jobless claims data was good, but we’ve had strong economic growth and it hasn’t mattered,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “The geopolitical story dominates everything.”
The U.S. added more than 200,000 jobs for a sixth month in July, data showed Aug. 1. A report on July 30 showed the U.S. economy grew at a 4 percent annualized rate in the second quarter, more than forecast.
Traders see a 53 percent chance the Fed will raise the key interest-rate target to at least 0.5 percent by July 2015, from virtually zero, fed fund futures show.
The central bank has cut its purchases of government and mortgage bonds, its tools for quantitative easing, six times, bringing the amount to $25 billion a month from $85 billion.
Industrial output in Germany increased less in June than economists forecast, data showed. Production rose 0.3 percent from May, when it declined a revised 1.7 percent. A Bloomberg survey forecast a reading of 1.2 percent. Bunds gained yesterday as reports showed Italy slipped back into a recession in the second quarter and German factory orders fell.
Australia’s 10-year yield dropped nine basis points to 3.42 percent, the biggest decline in more than four months. The jobless rate climbed to 6.4 percent last month, the statistics bureau said in Sydney today.
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