Treasuries Advance as Global Growth Concern Boosts Haven Allure

  • U.S. 10-year note yield falls to lowest in more than a month
  • Gap between two-, 30-year yields declines for a fourth day

Treasuries advanced, with the 10-year note yield falling to the lowest in more than a month, as renewed concern that global economic growth is slowing drove investors into the relative safety of government debt.

U.S. bonds gained after German 10-year yields fell to the lowest in a year as a report showed February factory orders unexpectedly fell in Europe’s largest economy. Global stocks declined by the most since February. Treasuries have earned 3.2 percent this year as a deteriorating global economic outlook prompts traders to reduce wagers on interest-rate increases from the Federal Reserve.

”We’re not an island in the world, and these global concerns have affected us,” said Aaron Kohli, a fixed-income strategist at BMO Capital Markets in New York. “The big question now is the persistence of that turmoil.’’

Fed officials in March cited global risks as they pared forecasts for 2016 rate hikes, moving the central bank closer to traders’ views on the path of U.S. rates. Fed Chair Janet Yellen last week committed to “proceed cautiously’’ with tightening monetary policy. A Bank of America Merrill Lynch index measuring price swings bond traders expect over the next year declined for a fifth day, touching the lowest since December 2014.

Treasury 10-year yields fell four basis points, or 0.04 percentage point, to 1.72 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data, the lowest on a closing basis since Feb 25. The 1.625 percent security due in February 2026 rose 12/32, or $3.75 per $1,000 face amount, to 99 5/32.

Flattening trend

The gap between yields on two-year notes, which are sensitive to Fed policy, and 30-year bonds, which are more influenced by expectations for inflation and economic growth, narrowed for a fourth day. The measure, known as the yield curve, declined four basis points to 1.82 percent. 

Commerce Department data showed the U.S. trade deficit rising to $47.1 billion in February, the highest level in six months. Exports rose 1 percent in February, the first increase since September, and imports climbed 1.3 percent. 

First-quarter U.S. GDP figures will reflect many of the same forces laid out in today’s trade data, said Gabriela Santos, global market strategist at JPMorgan Asset Management in New York.

“It’s exports subtracting a lot from growth, it’s investment spending that’s still a bit weak, partly as a result of some of those global concerns, and as a result growth is unable to break through,” Santos said in an interview on Bloomberg TV.

Futures signal a 20 percent probability of a Fed move by its June policy meeting, compared with a 54 percent probability assigned March 15, the day before the Fed released its latest policy statement. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.

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