Treasuries Snap Losing Streak as Bond Bulls Ponder 1% U.S. Yield

Stampede Into Bonds Under Unprecedented Risks: Aronov
  • Ten-year note yield retreats from highest level in three weeks
  • Benchmark will fall to 1% in 2017, Morgan Stanley says

Treasuries rose for the first time in four days as disappointing corporate earnings sparked concern that sluggish economic growth persists, boosting haven assets.

Benchmark 10-year note yields retreated from the highest in more than three weeks as U.S. stocks fell from record levels. Treasuries advanced after Commerce Department data showed new-home construction in the U.S. rose more than forecast in June, though residential starts in May were lower than previously estimated. 

Yields on 10-year notes closed Monday at the highest level since June 23, the day the U.K. voted to leave the European Union. That referendum sparked a rally in U.S. debt that sent yields tumbling to an unprecedented 1.318 percent on July 6. The gains were partly reversed last week when Treasuries posted their biggest weekly loss in a year amid encouraging economic data, including reports showing sales at U.S. retailers rose more than forecast and acceleration in a core measure of price growth.

“To retrace half of the Brexit move, that’s a significant reversal -- it’s not surprising to see some buyers,” said Anthony Valeri, fixed-income investment strategist at LPL Financial in San Diego. “The Treasury market is due for a little bit of stability.”

The benchmark U.S. 10-year note yield declined three basis points, or 0.03 percentage point, to 1.55 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader data. The 1.625 percent security due in May 2026 rose 1/4, or $2.50 per $1,000 face amount, to 100 21/32.

The 10-year note’s 3.8-basis-point trading range on Tuesday was the smallest since June 22, according to data compiled by Bloomberg.

Morgan Stanley and Northern Trust Corp. are bullish on Treasuries after the recent selloff, calling for 10-year yields to drop to 1 percent by next year as the U.S. economy disappoints and the Federal Reserve holds off on raising interest rates.

Morgan Stanley’s Matthew Hornbach, the firm’s head of global interest-rate strategy who called this year’s Treasury market rally, said 10-year U.S. yields will fall to 1 percent in the first quarter of 2017. Katie Nixon, chief investment officer of wealth management at Northern Trust Corp., said in an interview on Bloomberg Television that yields will be closer to 1 percent than 2 percent in a year’s time.

Investors from outside the U.S. have been snapping up Treasuries as alternatives to negative yields in Japan and Europe, pulling yields lower even amid signs the U.S. economy is picking up.

Traders see about a 44 percent chance of a Fed rate increase by the close of 2016, futures contracts indicate.

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