Treasuries are in such demand that even amid plunging inflation expectations, a group of buyers including central banks bought a record amount at Thursday’s auction of inflation-protected securities.
Government debt was already advancing before the 1 p.m. New York time auction, led by the longest maturities, as slumping equity prices fueled investors’ quest for a haven.
In the $16 billion auction of U.S. five-year inflation-indexed notes, indirect bidders purchased 76.4 percent of the securities, an all-time high. The category also includes mutual funds.
“Simple, it was cheap,” said Michael Pond, head of global inflation-linked research at Barclays Plc, one of 22 primary dealers that trade with the Federal Reserve. “There’s general risk-off going through” the market.
The benchmark U.S. 10-year note yield fell six basis points, or 0.06 percentage point, to 2.07 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The 2 percent security due in August 2025 rose 1/2, or $5 per $1,000 face amount, to 99 3/8.
Yields on 30-year bonds fell about seven basis points to 2.74 percent, approaching the lowest level since April.
The government bonds of Australia, Japan, Germany and the U.K. also rose. In the latest evidence of stress on emerging-market economies, Kazakhstan abandoned control of its currency.
Underscoring the collapse in inflation expectations, the difference between yields on 10-year inflation-indexed securities and nominal notes, known as the break-even rate, dropped to 1.53 percentage points, the lowest since January.
Treasuries added to gains posted Wednesday and headed for a second consecutive monthly advance as the prospect of a delay in Fed interest-rate increases bolstered fixed-income assets.
Minutes of the Fed’s July meeting released Wednesday showed officials didn’t consider conditions for the first interest-rate increase since 2006 had been met, even though they “were approaching that point.” The minutes made no specific mention about whether officials supported a boost at the next meeting in September or in December.
“The minutes brought into serious question the notion that the Fed is going to lift rates at the September meeting,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
Futures show a 34 percent chance the Fed will raise its benchmark rate at its Sept. 16-17 meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. The probability was 48 percent at the end of last week.