Treasuries rose, sending 30-year yields to a 14-month low, as conflict in Ukraine spurred investor demand for safety and reports signaled the U.S. economy will struggle to gain traction.
Yields on U.S. 10-year securities dropped to the lowest since June 2013 as Ukraine said its troops attacked a military convoy that entered the country from Russia. A gauge of U.S. consumer confidence unexpectedly fell, and manufacturing in the New York region declined more than forecast, stoking bets the Federal Reserve will be slow to raise interest rates. The German 10-year bund yield touched a record low.
“This is just the never-ending flight-to-quality bid,” said David Coard, head of fixed-income trading in New York at Williams Capital Group LP, a brokerage for institutional investors. “Things are heating up in the Ukraine, and the bid for Treasuries is heating up along with it. The economic data recently has been a little underwhelming.”
Thirty-year bond yields dropped seven basis points, or 0.07 percentage point, to 3.13 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. The yields, which fell 10 basis points on the week, touched 3.10 percent, the lowest level since May 22, 2013. The price of the 3.125 percent debt maturing in August 2044 increased 1 1/4, or $12.50 per $1,000 face amount, to 99 27/32.
Benchmark 10-year note yields fell six basis points to 2.34 percent and reached 2.30 percent, the lowest since June 19, 2013. They decreased six basis points on the week. Five-year note yields declined four basis points to 1.54 percent after dropping as much as eight basis points.
The amount of Treasuries traded through ICAP Plc, the largest inter-dealer broker of U.S. government debt, increased 13 percent to $396 billion, the highest since Aug. 1. The average daily volume this year is $327 billion. It reached $504 billion on Aug. 1, the highest level in three months, and fell on Aug. 4 to $197 billion.
Hedge-fund managers and other large speculators increased bets on a decline in U.S. 10-year notes in the week ending Aug. 12 to the most since July 18, according to U.S. Commodity Futures Trading Commission data. Speculative net-short positions, or bets the note’s prices will fall, rose to 50,180 contracts, from 45,131 the week before.
Speculators increased futures bets on Treasury 30-year bonds to a 17,208 net-long position, also the biggest since July 18, compared with a net long position of 3,953 contracts the week before, data from the Washington-based CFTC show.
Thirty-year yields fell as much as nine basis points today, the most since Jan. 23, when Treasuries climbed amid tepid economic data. Ten-year yields sank as much as 10 basis points, also the most since Jan. 23.
“It’s the compounding effects of slightly worse-than-expected data and the headlines surrounding Ukraine,” said Aaron Kohli, an interest-rate strategist at BNP Paribas SA in New York, one of 22 primary dealers that trade with the Fed. “For the bulls, it’s an opportune moment. The idea that it could get worse would make people hesitant to sell as we head into the weekend.”
Traders see a 34 percent chance the Fed will increase its benchmark interest-rate target to at least 0.5 percent by June, futures contracts indicate. That’s down from a 51 percent likelihood at the end of last month. The central bank has held the target in a range of zero to 0.25 percent since 2008.
The crisis in Ukraine escalated as the government said its army destroyed part of the column of military vehicles that came from Russia. The Russian Defense Ministry said today no military column from the country crossed into Ukraine, the state-run news service reported.
Geopolitical tensions have combined with anemic economic reports around the world to push sovereign yields lower. Slow growth in Europe has fueled speculation European Central Bank policy makers will boost stimulus to strengthen growth.
Euro-area policy makers have dropped interest rates to record lows, including a negative deposit rate. ECB President Mario Draghi signaled last week that monetary policy will diverge from that of the U.S. for an extended period of time.
The German 10-year bund yield fell to 0.95 percent, the least since Bloomberg began tracking the data in 1989. The extra yield investors earn on U.S. 10-year notes versus comparable bunds was 139 basis points. It reached 140 basis points July 31, the most in 15 years based on closing prices.
“The Fed would do everything in its power to avoid negative rates,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc. a primary dealer. “We’ve seen it through all their policies. They’ve been much more proactive than European policy makers, trying to create inflation, so I think it would be difficult to see that happen.”
Treasuries rose as manufacturing in the region covered by the Fed Bank of New York expanded at a slower pace in August, a report showed. The central bank’s Empire State Index fell to 14.7 from a four-year high of 25.6 in July. Readings greater than zero signal growth.
“You’re seeing economic data that are not by any means becoming poor, but they are not showing the strength the market was looking for in order to assume the Fed may have to raise rates,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities, a New York-based brokerage for institutional investors.
The Thomson Reuters/University of Michigan preliminary index of sentiment dropped to 79.2 this month, the lowest since November, from 81.8 in July. A Bloomberg survey forecast a reading of 82.5.
Today’s reports followed Commerce Department data July 30 that showed U.S. gross domestic product rose an annualized 4 percent from April through June, the fastest since the third quarter of 2013.