Treasuries advanced, rallying with their peers in Europe, after European Central Bank Executive Board member Benoit Coeure said officials will expedite bond purchases in anticipation of lower liquidity in the summer months.
Ten-year notes halted a drop from Monday that had pushed the yield up by the most in a week. Separately, Bank of France Governor Christian Noyer said at a conference in Paris that a persistent slack in euro-area economic output has contributed to low inflation in the region, emphasizing policy makers’ commitment to stimulating the economy. German 10-year yields dropped to the lowest level in a week, boosting the relative allure of Treasuries.
“The strong market reaction to Coeure’s comments in Europe has to some extent to do with what’s happening in the U.S.” bond market, said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “The timing of the rally in Treasuries is also offering such evidence.”
Treasury 10-year yields fell five basis points, or 0.05 percentage point, to 2.19 percent at 7:10 a.m. in New York, according to Bloomberg Bond Trader data. The benchmark 2.125 percent note maturing in May 2025 climbed 13/32, or $4.06 per $1,000 face amount, to 99 14/32.
Yields jumped nine basis points on Monday, the biggest increase since May 11.
Benchmark German 10-year bund yields fell seven basis points to 0.58 percent and touched 0.55 percent, the least since May 11. French 10-year bond yields declined seven basis points to 0.86 percent.
The ECB intends to increase its purchases of euro-area assets in May and June to counter “seasonal patterns in fixed-income market activity with the traditional holiday period from mid-July to August characterized by notably lower market liquidity,” Coeure said, according to the text of a speech delivered in London on Monday.
While central banks in Europe and Japan are pumping record amounts of money into their economies to combat the threat of deflation, the Federal Reserve is moving closer to increasing interest rates. Even so, weaker-than-expected data is undermining the case for an imminent rate increase.
The Citigroup Economic Surprise Index showed U.S. data are falling short of expectations by almost the steepest amount in four years. The gauge declined to minus 72.4 on Monday, close to the negative 73.3 level reached in March, the least since August 2011.
The U.S. central bank is scheduled to publish the minutes of its April 28-29 meeting on May 20. The Fed will probably boost borrowing costs in about eight months, compared with about six months in March, a Morgan Stanley index indicates.