Treasury notes gained for a fourth day on speculation an economic slowdown will keep the Federal Reserve from raising interest rates anytime soon.
U.S. five-year yields dove after a report showed industrial production fell more than forecast in March, the latest sign that robust growth hasn’t returned after a harsh U.S. winter. That comes as the Fed debates raising borrowing costs for the first time since 2006.
“The softer data is the catalyst for the rally since the beginning of the week,” said Dan Mulholland, a trader at Credit Agricole CIB in New York. That’s the prelude to “Fed hikes being pushed out the curve.”
Yields on five-year notes fell two basis points, or 0.02 percentage point, to 1.32 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The price of the 1.375 percent note due in March 2020 rose 3/32, or 94 cents per $1,000 face value, to 100 9/32.
Benchmark 10-year note yields fell one basis point to 1.89 percent.
Shorter-term Treasuries reflect forecasts in the federal funds rate, while longer-term debt is more closely tied to inflation expectations.
Bond bulls are also being lured by U.S. yields that are higher than 19 of 24 other developed nations around the world.
German 10-year yields dropped to a record 0.105 percent, joining at least five other euro-area nations hitting all-time lows, as European Central Bank President Marion Draghi affirmed that the bank’s 1.1 trillion euro ($1.2 trillion) quantitative-easing program would run through September 2016.
ECB policy makers have joined colleagues from Japan, China and about 30 central banks around the world in implementing stimulus programs in 2015, according to data compiled by Bloomberg. Meanwhile, the Fed faces headwinds in its intention to raise rates, saying in their last statement March 18 that a rate increase at their April 28-29 meeting “remains unlikely.”
Traders see zero chance of it happening then, according to futures trading, and give 51 percent odds for the first hike to come in December. Policy makers have held the main lending rate at zero to 0.25 percent since 2008 to support the economy.
Fed Bank of St. Louis President James Bullard kept up the pressure for higher rates on Wednesday, repeating his call to begin to normalize monetary policy and saying that interest rates held near zero risk destructive asset-price bubbles.
“If a bubble in a key asset market develops, history has shown that we have little ability to contain it,” Bullard said in prepared remarks in Washington, citing the housing bubble that preceded the last recession.
Note yields slid as total industrial production declined 0.6 percent, the biggest drop since August 2012. It was projected to fall 0.3 percent, according to the Bloomberg survey of 83 economists. A separate report Wednesday showed the Empire State Manufacturing index declined.
These results followed lower-than-forecast data on payrolls growth and retail sales, indicating more fundamental factors are restraining growth than just unseasonable winter weather in the first quarter across much of the U.S.
“The data right now is definitely not going to encourage the Fed to move faster, so yields may stay low until the data starts to improve.” said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of the 22 primary dealers that deal with the Fed. “The generally expected tone was things were going to get better as we got better weather.”