Treasuries are up for the year and U.S. shares are down -- an about face from just a few weeks ago.
After a week-long rally through Wednesday, the Bloomberg U.S. Treasury Bond Index has returned 0.7 percent for 2015. That’s a relief for investors in the world’s biggest debt market following three months of losses from April through June. The Standard & Poor’s 500 Index is down 0.6 percent for the year, with the gauge falling from a record in May.
Greece is struggling to stay in the euro currency union and Chinese shares are in a bear market, driving demand for the relative safety of U.S. government debt. The Federal Reserve acknowledged the potential risks from overseas crises, boosting speculation it will delay increasing interest rates until next year.
“Stock prices have been overvalued,” said Yusuke Ito, a senior fund investor at Mizuho Asset Management in Tokyo. Greece and China “are going to be triggers for risky assets to come down. The decline in Treasury yields will continue,” he said.
Fed officials in June saw the U.S. economy moving toward conditions that would support an interest-rate increase, according to the minutes of the meeting issued Wednesday. Several policy makers noted risks in China and Greece.
The central bank will wait until the first quarter of next year to increase borrowing costs, according to a Morgan Stanley index that’s based on futures trading.
Greece is working on an economic package to convince European leaders that it can keep the euro. The leaders of all 28 European Union countries will meet in Brussels on Sunday to decide their response.
The Shanghai Composite Index has plunged about 30 percent from its June peak.
It’s not a sure thing bonds will hold their gains versus stocks. Chinese shares rallied back from an initial loss Thursday, while Treasuries declined.
U.S. government securities fell as some investors “slightly” unwound their flight-to-quality trades, said Kazuaki Oh’e, a debt salesman at CIBC World Markets Japan Inc. in Tokyo.
The benchmark 10-year U.S. yield climbed four basis points to 2.23 percent as of 6:54 a.m. in London, according to Bloomberg Bond Trader data. The 2.125 percent note due in May 2025 declined 11/32, or $3.44 per $1,000 face amount, to 99 1/32.
“We’re advising people to still look for weakness to buy into global equities,” Steve Brice, chief investment strategist at Standard Chartered Plc in Singapore, said in an interview Wednesday. “Longer term, we should be buying into equities again, expecting a strong rally later this year and through into 2016.”
The last time Treasuries outperformed the S&P 500 was 2011. The reason was the same as it is now: debt woes in Europe driving demand for safety.