Record Low U.S. Treasury Yield In Sight as Global Slowdown Seen

  • Japan 10-year yield falls to 0.045%, lowest ever among G-7
  • Yield on global sovereign bond index drops to 12-month low

Treasury benchmark yields fell to within half a percentage point of an all-time low as interest rates plunged around the world, raising concern the move foreshadows a global economic slowdown.

U.S. 10-year yields, used to set borrowing costs on everything from home mortgages to corporate bonds, dropped to as low as 1.83 percent Wednesday. They slid to a record 1.379 percent in July 2012. The yield on a Bank of America Corp. index of sovereign bond slipped to 1.36 percent this week, extending its decline to levels not seen in a year.

Investors are rushing to the haven of sovereign bonds as oil prices and shares tumble. The Bank of Japan is following the European Central Bank in using negative interest rates to ward off deflation, and traders are cutting their forecasts for how much the Federal Reserve will raise U.S. rates.

“There is concern about global growth,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management, South Korea’s biggest private money manager with $113 billion in assets. “That’s causing demand for U.S. Treasuries and other sovereign debt markets.” While the expansion is slowing, the U.S. economy is growing and isn’t in a recession, he said.

The U.S. 10-year note yield was little changed at 1.85 percent as of 6:50 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2.25 percent security maturing in November 2025 was 103 19/32. The yield tumbled 10 basis points Tuesday, the biggest decline since Sept. 17.

Yields in Japan extended their decline to record, with the 10-year reaching 0.045 percent, the lowest ever among Group-of-Seven nations. The five-year fell to minus 0.135 percent.

Crude oil declined to a 12-year low in January, and the MSCI All Country World Index of shares has fallen about 8 percent this year. The odds of the Fed following its December rate increase with another in 2016 are less than 50 percent, futures contracts indicate.

The International Monetary Fund cut its world growth outlook last month. The global economy will expand 3.4 percent this year, down from a projected 3.6 percent in October, the IMF said.

“Global bond yields are certainly predicting a global slowdown,” said Priya Misra, head of worldwide interest-rates strategy in New York at TD Securities (USA) LLC, one of the 22 primary dealers that trade directly with the Fed. “We’ve taken this decline in oil to be very negative for risky assets and to imply that the Fed is not going to hike for now,” she said in an interview this week.

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