Treasuries Gain on Speculation Foreign Turmoil Is Driving Demand

  • Completion of $28 billion debt auction rescheduled for Friday
  • Yields fall even as oil climbs, durable goods orders jump

Treasuries advanced as continued concern about the global economic outlook, coupled with pending decisions over Europe’s political future, drove investors to buy haven assets.

Benchmark 10-year note yields fell even amid gains in stocks and oil and after a Commerce Department report showed orders for capital equipment, a harbinger of business spending, jumped in January after plunging to a more than two-year low at the end of 2015. The Bank of America Merrill Lynch’s MOVE Index, which tracks one-month option projections for the pace of swings in Treasuries maturing in two to 30 years, has averaged 85.7 this month, the highest since June 2015.

“We’re not trading the norms of what we typically look at in here,” said David Ader, head of rates strategy with CRT Capital Group LLC in Stamford, Connecticut. “We’re not trading data, we’re not trading inflation -- we’re trading fear. We are being held hostage to activities overseas.”

Treasuries have returned 2.7 percent in 2016, according to Bloomberg index data, amid growing worry that sliding energy prices and slowing international growth may bleed through into the broader U.S. economy. Britain will vote June 23 on whether to leave the European Union.

The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 1.72 percent at 5 p.m. in New York.

Month-End Reshuffling

Investors likely weren’t much more downbeat on the U.S. economy, said Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets, one of 22 primary dealers that trade with the Federal Reserve. Instead, he said investors may be reshuffling portfolios before the end of the month, while those who were betting on Treasury-market declines may have been forced to close out their positions.

“It’s mechanical, not motivated by prices,” he said. Betting on Treasury-market declines “is just a massive pain trade for now.”

A bond-market gauge of inflation expectations known as the the 10-year break-even rate rose for a fifth day after it fell on Feb. 10 to the lowest since March 2009.

The U.S. postponed until Friday the closing of a planned $28 billion auction of seven-year notes.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE