U.S. 30-Year Bond Yields Slide to 16-Month Low on Fed, Brexit

Normal Rates Needed as Fed Out of Tools, Says Ailman
  • Yields fall for eighth day, longest run since January 2015
  • Traders see a 5.9 percent chance of rate increase in July

Treasuries rose, pushing 30-year yields to lowest level in 16 months, after Federal Reserve Chair Janet Yellen said interest rates may stay low for longer as concern that Britain may vote to leave European Union boosted demand for the safest fixed-income assets.

Yellen said Wednesday slow productivity growth and aging societies may keep interest rates at depressed levels. She also cited the risk of a Brexit vote as a reason to leave rates steady. Fewer Fed officials expect the central bank to raise interest rates more than once this year than they did three months ago, based on projections the central bank issued. While opinion polls show the “Leave” camp is gaining momentum, most of the biggest betting firms and exchanges in the U.K., Ireland and beyond place a 60 percent or higher chance of Britain remaining in the world’s biggest trading bloc.

“Previously the Fed was in a parallel universe, but now they have taken a semblance of reality into their thinking,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “The fact that they have slashed their dot plots -- implying they are acknowledging significant downside risk to the economy -- has hurt risk sentiment and boosted bonds.”

Yields Slide

Treasury 30-year bond yields dropped one basis point, or 0.01 percentage point, to 2.40 percent as of 6:43 a.m. New York time, after touching 2.37 percent, the lowest since February 2015, according to Bloomberg Bond Trader data. The 2.50 percent securities due in May 2046 rose 7/32, or $2.19 per $1,000 face amount, to 102 6/32. The yield fell for an eighth day, the longest streak since January 2015.

Benchmark 10-year note yields dropped one basis point to 1.56 percent, having touched 1.54 percent, the lowest since Feb. 11.

The latest Fed comments reduced the odds the U.S. central bank will raise interest rates at its July meeting to 5.9 percent from 79 percent at the start of the year. Traders now see a 40 percent chance of a rate increase in 2016.

Treasuries advanced along with global government bonds. The rally pushed benchmark 10-year yields in Germany and Japan further below zero Thursday. Japan’s 10-year bond yield touched minus 0.21 percent, while that on similar-maturity German bunds reached minus 0.035 percent.

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