Treasuries rose, pushing yields to the lowest level in more than one month, as a selloff in Chinese stocks joined the Greek bailout standoff to boost demand for the relative safety of U.S. government securities.
U.S. debt gained for a third day as a strengthening dollar and declines in commodities weighed down the outlook for inflation, and pushed out traders’ forecasts for when the Federal Reserve will raise interest rates. Treasuries pared gains as optimism grew that European officials meeting in Brussels may find a way out of Greece’s bailout stalemate.
“Every 15 minutes, every 30 minutes there’s a new headline,” said Tyler Tucci, a U.S. government-bond strategist at RBS Securities Inc. in Stamford, Connecticut, one of 22 primary dealers that trade with the Fed. “The latest is there may be an interim funding deal in the works which would allow Greece to kick the can.”
Treasury 10-year yields fell three basis points, or 0.03 percentage point, to 2.26 percent at 5:03 p.m. New York time, according to Bloomberg Bond Trader data. The benchmark 2.125 percent note due in May 2025 rose 1/4, or $2.50 per $1,000 face amount, to 98 27/32. The yield fell as much as 10 basis points, touching the lowest level on a closing basis since June 1.
The yield on German 10-year bunds, the euro area’s benchmark sovereign securities, dropped 12 basis points to 0.64 percent, the lowest level since June 1. Commodities fell, with the Standard & Poor’s GSCI Index of 24 raw materials dropping to its lowest level since April 2.
Greece may have sidestepped an immediate collision with creditors by promising economic reform proposals. Euro-area finance chiefs will discuss Greece’s request on a conference call Wednesday morning. German Chancellor Angela Merkel said Tuesday that the country only has a few days left to reach a deal, setting a Sunday deadline.
“There’s a little bit more optimism with Greece moving towards a deal, so we’re seeing some selling pressure,” said Dan Mulholland, a trader at Credit Agricole SA in New York. “It was really propped up on the flight-to-quality bid” earlier in the day.
Investors also bought safe assets amid rising concern about Chinese markets, after a tumble that erased $3.2 trillion in value and prompted government intervention.
The weakening outlook for international economic growth prompted more gains U.S. dollar against major peers such as the euro, which pushed down expectations for inflation. Fed officials have expressed concern about the effects of a rallying greenback, since a stronger dollar makes U.S. exports pricier and cuts into profits of multinational companies.
Traders’ odds that the Fed will raise borrowing costs in September fell to 25 percent from 27 percent on Monday, according to data compiled by Bloomberg. On June 26, before Greek Prime Minister Alexis Tsipras called for the recent referendum, traders assigned a 38 percent chance to a rate increase in September.
“The Fed will be concerned about a slowdown of global growth and what that slowdown will mean for the U.S.,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s private-wealth unit in New York.
Demand for the Treasury Department’s sale of $24 billion of three-year notes was slightly below the level for the past 10 auctions, as measured by the bid-to-cover ratio. The securities yielded 0.932 percent, compared with an average forecast of 0.930 percent in a survey of six primary dealers.
The U.S. is scheduled to sell 10-year debt on Wednesday and 30-year bonds one day later.