Treasuries Tumble as Stock, Oil Gains Curtail Demand for Havens

  • Ten-year notes set for biggest back-to-back loss in two months
  • Bonds look expensive following rally, National Australia says

Treasuries fell, heading for their biggest two-day drop in two months, as a rally in stocks around the world cut demand for the relative safety of government debt.

The longest maturities, those most sensitive to inflation, led the decline as oil also advanced. The moves are a reversal from last week, when tumbling equities and crude prices sent investors rushing to bonds, pushing the benchmark 10-year U.S. yield to within 15 basis points of the record low.

“Bonds look a little expensive,” said Peter Jolly, Sydney-based head of market research at National Australia Bank Ltd., the nation’s biggest lender by assets. “Stocks and credit are starting to look relatively cheap. Our forecast sees subdued but continued growth globally and in the U.S.”

Treasury 10-year note yields climbed three basis points, or 0.03 percentage point, to 1.78 percent as of 6:56 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in February 2026 fell 1/4, or $2.50 per $1,000 face amount, to 98 5/8.

Rising Yield

The yield has increased 12 basis points in two sessions, the most since Dec. 14-15. It dropped to 1.53 percent on Feb. 11, approaching the record of 1.379 percent set in 2012.

The MSCI All Country World Index of shares rose 0.2 percent, adding to a 1.3 percent gain Monday. Crude climbed to a one-week high on prospects of a meeting between the Saudi Arabia and Russian oil ministers. It fell to the lowest in almost 13 years last week.

Volatility is picking up as Treasuries start trading after being closed worldwide Monday for a U.S. holiday and as Chinese markets revive following last week’s shutdown for the Lunar New Year holiday, said Yusuke Ito at Mizuho Asset Management.

Mizuho is sticking with its bet for long-term Treasury yields to keep falling as inflation remains contained, said Ito, a senior investor at the Tokyo-based company, which oversees about $43.6 billion.

“Volatility is quite high,” he said. Yields “could rise by five or 10 basis points, but nobody knows what’s going to happen tomorrow. Our views haven’t changed.”

The 10-year yield will climb to 2.46 percent by year-end, according to a Bloomberg survey of economists with the most recent forecasts given the heaviest weightings.

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